The Reserve Bank of Australia left its cash rate unchanged on Tuesday as widely expected and reiterated that the exchange rate remains high by historical standards and is affecting the rebalancing of the economy.
“The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy,” the RBA said in the cash rate statement.
The language around the currency was slightly different from recent statements but the overall message remains the same – that the level is deterring the economy’s aim to rebalance out of resources investment.
The RBA said once again that commodity prices remain high in historical terms but that some of those important to Australia have declined. The reference was mainly to iron ore prices which last month fell to the lowest level since mid-2012 and have only managed a small rebound since.
This is the tenth consecutive meeting without any rate action from the RBA and the fifth meeting where it has offered the same 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.