Reserve Bank of Australia Keeps Rate at 2.5%


The Reserve Bank of Australia decided on December 3rd to leave the cash rate unchanged at 2.5 percent, citing sluggish growth and stable inflation.

Statement by Glenn Stevens, Governor:

Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined from their peaks, but generally remain at high levels by historical standards. Inflation in most countries is well contained.

Overall, global financial conditions remain very accommodative. Volatility in financial markets has abated recently. Long-term interest rates remain very low and there is ample funding available for creditworthy borrowers.

In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment. Recent data on prices and wages show inflation consistent with the medium-term target. The Bank's assessment is that this is likely to remain the case over the next one to two years.

The easing in monetary policy that has already occurred since late 2011 has supported interest-sensitive spending and asset values. The full effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households. Housing and equity markets have strengthened further over recent months, trends which should in time be supportive of investment.

The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy.

RBA | Nuno Fontes | nuno@tradingeconomics.com
12/3/2013 9:42:04 AM