Reserve Bank of Australia holds at record low 1.5% as expected

03 August, 2017, 00:15 | Author: Elaine Woods
  • RBA monetary policy statement incoming: Markets eye comments on AUD strength

He said Dr Lowe's statement "effectively says that a stronger Australian dollar amounts to a de facto monetary policy tightening which threatens the RBA's growth forecasts".

At its meeting today, the Board chose to leave the cash rate unchanged at 1.50 per cent.

Higher commodity prices, weakness in the USA dollar and some lingering speculation that the RBA might take a more hawkish view on policy are among the factors lifting the Aussie dollar. It would also cause the progress in economic activity and inflation to be slower than predicted.

On next week BoE policy meeting, CACIB doesn't expect any policy changes from the BoE and suspects that support for a rate hike at the MPC has waned after the departure of Kirstin Forbes in June.

The Australian dollar fell following the decision to keep rates on hold, but recovered some ground through the morning.

The Australian dollar was buying roughly 80.2 United States cents before Governor Lowe issued the strongly-worded statement.

A higher exchange rate means both its exports comparatively more costly.

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Mr Farnham said the RBA was unlikely to raise rates this year, and the possibility of a further cut could not be dismissed. Some pick-up in non-mining business investment is expected. "Recent declines in the U.S. dollar and strengthening commodity prices have placed added pressure on the Australian dollar, which may reduce export demand".

He said the economy was still expected to grow at an annual rate of three per cent for the next few years but stressed that forecast may change should the Australian dollar continue to rise.

Indeed, at a recent speech at the Anika Foundation Luncheon in Sydney, RBA Governor Philip Lowe said that "the persistent slow growth in wages is creating a challenge for central banks".

He adds that there are two schools of thought about this, with the first composed of optimists, for whom, "the strength of the service sector, representing 80% of the economy, shows the underlying resilience of growth with services now 2.3% bigger than a year ago", whilst pessimists argue that the, "falls in production output are being masked by a short-lived expansion of services that's doomed to fall victim to the real income squeeze". A factor working in the other direction is increased competition from new entrants in the retail industry.

"The Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time", he said.

Dr Lowe said that Chinese economic growth has strengthened, bolstered by stronger spending on infrastructure and property construction, although he noted that high debt levels continued to present a medium-term risk.

Meanwhile, the S&P/ASX 200 index traded 0.35 percent lower at 5,690.50 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -11.95 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

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