The Reserve Bank of Australia has announced on Tuesday that they will retain rates at a record low of 1.5%, explaining that the current economic conditions of Australia are exhibiting signs of being in line with the nation’s target inflation and growth targets.
In a statement by Philip Lowe, Governor of the Australian central bank, the monetary policy decision was attributed to the fact that the bank has observed a global economic growth over the recent months. With signs of better business and consumer confidence, RBA decided to hold its current cash rates at 1.5% for the 8th straight month.
At present, the Australian economy is still undergoing the transition process from its investment mining boom, which grew 2 ½% last 2016. The country’s economy has since increased as well along with other non-mining business investments. Meanwhile, under the consumption data, the rates have reached at, or above, average too. RBA stated that consumption growth has boomed over the course of the last months of the year, but household income growth remained slow.
RBA decided to retain its current outlook, seeing an optimistic future for economic growth supported by low levels of interest rates, while most financial institutions are still capable to lend good amounts. With the declining exchange rates, this has supported Australia’s economy during its transition from the mining investment boom. Lowe also mentioned that Australia’s economy expanded by 2.4% in 2016 at A$1.7 trillion, partially backed by lower commodity prices and better consumption growth rate.
However, the nation’s labour market still poses challenges as unemployment improvement does not record consistently across the country. Over the past year, Australia’s unemployment rate remained around the 5 ¾%, while employment rate grew in the part-time job category
Australia’s inflation rates remain low and are expected to rise around 2% in 2017, although its increase is expected to show gradual increases. The underlying inflation is also believed to still remain low for some time.
“Taking account of the available information 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,” Lowe said in his statement.
With RBA’s retained cash rates at 1.5%, the Australian dollar surged against the US dollar going above the $0.76 level, heading to its 5-day high versus the greenback. From the time of writing, the Aussie dollar is trading at $0.7611, with a relative strength index of 49.1114.
During the start of 2017, AUD surged once more against the greenback, climbing from the recent December 2016 plunge exchange rate at $0.7175.
On Tuesday trading, AUD has outperformed most of the other major currencies following RBA’s announcement. So far this year, the dollar has already surged 5% against the USD and has been the best performing currency in 2017.
The Australian dollar has already depreciated in value against the US dollar by almost 27% from 2013. The currency pair back then traded at $1.0422.
However, as Lowe stated on the monetary policy, the declining exchange rates has helped the country during its transition period from the mining investment. Lowe said that if the exchange rates, then were higher, the central bank would have a harder time adjusting from the investment boom. The low Australian dollar has since aided the nation’s economy in recovering over the last four years.
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