The Reserve Bank of Australia left its cash rate unchanged on Tuesday as widely expected and again said that the exchange rate remains high by historical standards. But the bank refrained from any obvious jawboning to bring the exchange rate down.
The RBA also seemed confident the economy would continue to pick up even though it said the recent exchange rate rise would impact the rebalancing process.
“The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards,” the RBA said in the cash rate statement.
The RBA left the cash rate at 2.5% for the seventh consecutive meeting and maintained its guidance that “the most prudent course is likely to be a period of stability in interest rates.”
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 continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time,” the RBA said. This indicates the RBA is confident that growth will pick up despite the dampening influence of the high exchange rate.
The RBA was slightly optimistic on the labor market, saying in the statement that the rate of unemployment “will probably rise a little further in the near term.” Previously the RBA said it “expects unemployment to rise further before it peaks.”
The RBA continued to guide that the rate will remain stable based on its judgment that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.”
Contrary to expectations that the RBA would signal its discomfort with rising housing prices, the bank merely repeated its line of the past few months: “Dwelling prices have increased significantly over the past year,” the RBA said.
The bank said it expects inflation to remain consistent with the 2% to 3% target band over the next two years.
The RBA’s view on the global economy was little changed from 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 again said.
On China, the RBA said growth there remains in line with policymakers’ objectives though it may have slowed a little in early 2014. On Japan, it noted again that the country has recorded a significant pick-up in growth.