Interest Rates To Stay On Hold, Rba Minutes Show

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May 20th, 2014

The Reserve Bank of Australia has, yet again, given no indication of any future change to the cash rate, which remains at a record low 2.5 per cent.

In the minutes of its May meeting, released today, the board judged it was prudent to leave rates on hold while they continued to have the “expected effects” on economic activity.

“A sustained increase in dwelling investment was in prospect, consumption had strengthened a little and business conditions were around average levels,” the RBA said.

The economy had evolved in line with expectations, the RBA said, meaning its forecasts for activity and inflation were little changed.

“With growth in activity expected to pick up only gradually, and spare capacity in the labour market consequently remaining for some time, growth in domestic costs was forecast to remain contained, which would help to offset the ongoing effect on prices from the depreciation of the exchange rate over the past year,” the RBA said.

“Given this outlook for the economy and the significant degree of monetary stimulus already in place to support economic activity, the board considered that the current accommodative stance of policy was likely to be appropriate for some time yet.”

The board noted that financial markets expected no change in the cash rate for the rest of 2014.

The outlook for the global economy hadn’t changed, the RBA said, while the Australian economy appeared to have picked up a little over the past two quarters, as expected.

The pick-up had been driven by very strong exports and growth in consumption and dwelling investment, the RBA said.

But the board said overall growth in coming quarters was likely to be below trend as growth in exports was expected to slow and mining investment continued to decline.

Growth would also be affected by “fiscal consolidation”, policy changes such as spending cuts and new taxes in the federal budget, which had yet to be released when the RBA met two weeks ago.