RBA upbeat on economy despite global woes

06_RBA upbeat on economy despite global woes

By Lucy Hughes Jones and Marty Silk

(Australian Associated Press)

The Reserve Bank has again held fire on interest rates, issuing more upbeat domestic commentary despite shifting to a more dovish global stance.

At its first board meeting of the year, the central bank left the cash rate at a record low of two per cent for a tenth straight month.

However the RBA warned that subdued inflation may provide scope for further policy easing.

The decision was widely expected by economists, many of whom believe the bank will stay on the sidelines until well into 2016.

RBA governor Glenn Stevens took note of solid domestic economic momentum despite recent international market turmoil.

“Financial markets have once again exhibited heightened volatility recently, as participants grapple with uncertainty about the global economic outlook,” he said in a statement after the RBA’s monthly board meeting on Tuesday.

The RBA will closely monitor global economic developments to judge whether recent financial turbulence leads to weaker global and domestic demand.

JP Morgan chief economist Stephen Walters said the central bank was clearly keen to maintain stability amid the uncertainty.

“There’s a potential feedback loop in terms of what’s happening in the markets and real economy,” he said.

Mr Walters tipped the RBA to hold off on rate moves for the foreseeable future to avoid unsettling the Australian dollar and the housing sector.

“They would be very reluctant to cut rates again,” he added.

The central bank also said it’d keep a close eye on the improving jobs market, Commonwealth Bank of Australia chief economist Michael Blythe said.

The RBA highlighted lower unemployment, above-average business conditions and stronger business lending, noting expansion in the non-mining parts of the economy strengthened during 2015.

“They’re now actually acknowledging that unemployment fell in the second half of last year when previously they’ve kind of characterised it as flat,” he said.

“That’s quite significant given the weight they place on unemployment in policy decisions.”

Mr Blythe also said borrowers shouldn’t expect any further rate cuts this year.

Market focus would now shift to the RBA’s Statement on Monetary Policy due out on Friday for any changes to the bank’s growth and inflation forecasts, he said.


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