The Reserve Bank of Australia left its cash rate unchanged on Tuesday as widely expected but is once again trying to jawbone the currency, saying it remains high by historical standards.
But unlike the jawboning seen in the final months of 2013, the RBA’s comment was directed towards ensuring the currency sustains the fall seen until now, rather than obviously calling for a further move lower.
“The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards,” the RBA said in the cash rate statement Tuesday.
At the board meeting, the RBA left the cash rate at 2.5% for the sixth meeting in a row and also maintained its guidance that “the most prudent course is likely to be a period of stability in interest rates.”
All 20 economists predicted the outcome.
The RBA has trimmed the cash rate by a total of 225 basis points since an easing cycle that began in November 2011, reaching 2.5% in August.
The RBA’s guidance was based on the board’s judgment that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.”
Overall, the RBA appears confident about the growth projections it made in the Statement of Monetary Policy in early February which was mainly based on the exchange rate staying at $0.8900. Since then, the currency moved slightly higher but is now hovering close to the $0.8900 level.
The RBA’s comments on consumer demand and housing construction were the same as last month, but on non-mining investment intentions the RBA said signs of improvement “are only tentative.”
On inflation, the RBA said it expects inflation to remain consistent with the 2% to 3% target band over the next two years. In case of growth, the RBA said it expects growth to strengthen with help from continued low interest rates and the lower exchange rate.
The RBA’s view on the global economy was little changed since last month. “Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one,” the RBA said again this month.
On China, the RBA said its growth remain in line with policymakers’ objectives.