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Australia holds rate, to reach inflation target over time

Monday, October 31, 2016 21:42
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(Before It's News)

    Australia's central bank left its benchmark cash rate at 1.50 percent, as expected, reiterating its view from October that an unchanged rate “would be consistent with sustainable growth in the economy and achieving the inflation target over time” following rate cuts in May and August.
    The Reserve Bank of Australia (RBA), which has cut its rate by a total of 50 basis points this year, once again said the lower exchange rate of the Australian dollar had been helping its exports, but added that “an appreciating exchange rate could complicate this.”
     The Australian dollar, which depreciated from 2013 through 2015, has been appreciating this year. Today it was quoted at 1.31 to the U.S. dollar, up 4.6 percent this year.
    The RBA affirmed that Australia's economy was “growing at a moderate rate” – the same expression it has used in recent months and its forecasts were little changed from three months ago.
    “Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years,” the RBA said in a statement from its governor, Philip Lowe.
    Australia's inflation rate rose to 1.3 percent in the third quarter from 1.0 percent in the second quarter while its Gross Domestic Product grew at an annual rate of 3.3 percent in the second quarter, up from 3.1 percent in the first quarter.
    The RBA targets inflation of 2-3 percent.

   
    The Reserve Bank of Australia issued the following statement:

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

The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past year, but growth in global industrial production and trade remains subdued. Economic conditions in China have steadied recently, supported by growth in infrastructure and property construction, although medium-term risks to growth remain. Inflation remains below most central banks' targets.
Commodity prices have risen over recent months, following the very substantial declines over the past few years. The higher commodity prices have supported a rise in Australia's terms of trade, although they remain much lower than they have been in recent years.
Financial markets are functioning effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Government bond yields have risen, but are still low by historical standards.
In Australia, the economy is growing at a moderate rate. The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports. Household consumption has been growing at a reasonable pace, but appears to have slowed a little recently. Measures of household and business sentiment remain above average.
Labour market indicators continue to be somewhat mixed. The unemployment rate has declined this year, although there is considerable variation in employment growth across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term.
Inflation remains quite low. The September quarter inflation data were broadly as expected, with underlying inflation continuing to run at around 1½ per cent. Subdued growth in labour costs and very low cost pressures elsewhere in the world mean that inflation is expected to remain low for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.
The Bank's forecasts for output growth and inflation are little changed from those of three months ago. Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years.
In the housing market, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. Turnover in the housing market and growth in lending for housing have slowed over the past year. The rate of increase in housing prices is also lower than it was a year ago, although prices in some markets have been rising briskly over the past few months. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.
Taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

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