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Stable Rate Outlook in RBA Minutes Pressures Aussie

Stable Rate Outlook in RBA Minutes Pressures Aussie

September 16, 2014  Guest post by Jay Hawk at Orbex.

The RBA released the minutes for its September 2nd monetary policy meeting earlier today. The central bank reiterated its neutral position on keeping the benchmark Cash Rate at its current level of 2.5%, where it has been for the last twelve months.

The Aussie reacted negatively to the minutes, with the AUD/USD rate initially declining after the release before then falling into a 0.8995-0.9010 trading range. The minutes were on the dovish side, with members still concerned the exchange rate remains too high.

Members noted that the Australian economy was seeing improvement but was still subdued.  Labor conditions, according to the minutes, had not deteriorated to the extent suggested by the recent rise in the Unemployment Rate to 6.4%.

Improvements in the housing market led to concern over the easing of mortgage lending standards and policies. The minutes said members observed that, “additional speculative demand could amplify the property price cycle and increase the potential for property prices to fall later. The main risks in such a scenario would likely be to the stability of the macroeconomy rather than the financial system, particularly if households were to react to declines in their wealth by cutting back on their spending.”

Furthermore, the minutes noted that the AUD/USD exchange rate remained above “most estimates of its fundamental value” and had not offered assistance in the achievement of balanced economic growth. The minutes concluded by saying that, “Members considered that the most prudent course was likely to be a period of stability in interest rates.”

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