RBA leaves official cash rate at 2pc

Jens Meyer quotes RBA governor Glenn Stevens:

While the decision to keep rates unchanged was widely expected, analysts were speculating that the governor would show some concern about the recent steep rise in the Australian dollar’s exchange rate, which gained nearly 12 per cent from its January lows to a peak of US77.23¢ last week.

Mr Stevens duly added a paragraph to this month’s statement, noting that the currency had appreciated “somewhat”.

“In part, this [the recent rise] reflects some increase in commodity prices, but monetary developments elsewhere in the world have also played a role,” he said, referring to recent monetary easing by other central banks including the Bank of Japan and the European Central Bank, as well as the decision by the US Federal Reserve to reduce the pace of interest rate hikes.

“Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy,” he added.

But anyone hoping for a stronger “jawbone” was disappointed and the Australian dollar shot up by about half a cent to the day’s high of US76.32¢, before falling back in late trade to around US76¢.

Central banks around the globe are destabilizing financial markets and the RBA responds with a polite acknowledgement at the end of its statement. Someone please tell the governor: If you want to run with the big dogs, you’ve got to learn to pee high.

Source: RBA leaves official cash rate at 2pc

2 Replies to “RBA leaves official cash rate at 2pc”

  1. Given Australian inflation is so benign, why are we keeping Interest rates at this level ?

    1. The real threat is from monetary easing by foreign central banks. The Australian economy doesn’t need lower interest rates but it needs a weaker dollar (which is supported by the interest rate differential). Warwick Mckibbin suggested several years ago that the RBA should be “leaning into the wind”. Priority #1 would be forcing Australian banks to reduce offshore funding. That would weaken the Aussie Dollar and remove a key vulnerability for the banking sector: wholesale funding that is likely to bolt at the first sign of trouble.

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