RBA Holds Steady at 2.5% as Mixed Conditions Create Policy Dilemma
by
George Tchetvertakov
The RBA maintained it's wait-and-see policy today by keeping rates at a record low. But with multiple risks to the Australian economy persisting, the central bank can do little more than await future developments.
The Reserve Bank of Australia (RBA) announced it is keeping interest rates unchanged at a historic low of 2.5% earlier today, for the 13th month in a row. Forex Magnates' analysis suggests the vast majority of market participants were expecting an unchanged decision and continue to expect no further base rate changes until mid-2015 at the earliest.
The RBA is struggling to walk a tightrope of sustaining agreeable economic conditions that facilitate growth and employment, while capping inflation and property market speculation that could potentially lead to a housing bubble. The additional issue of a high currency Exchange rate adds a new dimension of complexity to the RBA's mandated tasks of "contributing to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people."
“There has been some improvement in indicators for the labour market this year, but it will probably be some time yet before unemployment declines consistently,” said Glenn Stevens, RBA Governor. Adding, "Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year.”
Routine AUD Strength
The routine mention of a high Australian dollar was once again evident as the RBA continues to assert its dislike for the persistently high AUD/USD rate in particular - given Australia's major commodity exports being priced in US dollars. The RBA stated, "The Australian dollar is high by historical standards, particular given the declines in commodity prices...hence is offering less assistance than it might in achieving balanced growth in the economy," said Mr.Stevens.
Low interest rates are creating the necessary environment for a burgeoning housing market, more residential construction and helping to reinforce consumer spending, but failing to translate into economic growth - in part due to a high Australian dollar.
In his testimony before the House Economics Committee in July, Governor Stevens pointed out that so far in 2014, mortgage rates had fallen by the equivalent of 0.25% without the RBA having to adjust policy.
The common theme at the RBA is that while the AUD remains high, the RBA is unlikely to change interest rates, especially to the upside. In a statement, the RBA noted improvements in consumer confidence and improving business surveys among non-miners as reasons for cheer. However, economic dangers in the form of a high AUD and rising unemployment were cited as reasons for holding off on a rate normalization cycle. In August 2014, the unemployment rate rose to 6.4% from 6.0% in July.
Next Steps
On Wednesday we expect the Australian Bureau of Statistics (ABS) will reveal quarterly GDP figures for Q2 2014 at 11:30 AEST (expected at 0.4%), followed shortly after by Glenn Stevens' speech at the 'Committee for Economic Development of Australia' in Adelaide, scheduled for 13:20 AEST.
Any comments relating to RBA monetary policy and the likely schedule of future interest rate policy will be keenly anticipated by market participants given the RBA's neutrality for the time being.
The Reserve Bank of Australia (RBA) announced it is keeping interest rates unchanged at a historic low of 2.5% earlier today, for the 13th month in a row. Forex Magnates' analysis suggests the vast majority of market participants were expecting an unchanged decision and continue to expect no further base rate changes until mid-2015 at the earliest.
The RBA is struggling to walk a tightrope of sustaining agreeable economic conditions that facilitate growth and employment, while capping inflation and property market speculation that could potentially lead to a housing bubble. The additional issue of a high currency Exchange rate adds a new dimension of complexity to the RBA's mandated tasks of "contributing to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people."
“There has been some improvement in indicators for the labour market this year, but it will probably be some time yet before unemployment declines consistently,” said Glenn Stevens, RBA Governor. Adding, "Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year.”
Routine AUD Strength
The routine mention of a high Australian dollar was once again evident as the RBA continues to assert its dislike for the persistently high AUD/USD rate in particular - given Australia's major commodity exports being priced in US dollars. The RBA stated, "The Australian dollar is high by historical standards, particular given the declines in commodity prices...hence is offering less assistance than it might in achieving balanced growth in the economy," said Mr.Stevens.
Low interest rates are creating the necessary environment for a burgeoning housing market, more residential construction and helping to reinforce consumer spending, but failing to translate into economic growth - in part due to a high Australian dollar.
In his testimony before the House Economics Committee in July, Governor Stevens pointed out that so far in 2014, mortgage rates had fallen by the equivalent of 0.25% without the RBA having to adjust policy.
The common theme at the RBA is that while the AUD remains high, the RBA is unlikely to change interest rates, especially to the upside. In a statement, the RBA noted improvements in consumer confidence and improving business surveys among non-miners as reasons for cheer. However, economic dangers in the form of a high AUD and rising unemployment were cited as reasons for holding off on a rate normalization cycle. In August 2014, the unemployment rate rose to 6.4% from 6.0% in July.
Next Steps
On Wednesday we expect the Australian Bureau of Statistics (ABS) will reveal quarterly GDP figures for Q2 2014 at 11:30 AEST (expected at 0.4%), followed shortly after by Glenn Stevens' speech at the 'Committee for Economic Development of Australia' in Adelaide, scheduled for 13:20 AEST.
Any comments relating to RBA monetary policy and the likely schedule of future interest rate policy will be keenly anticipated by market participants given the RBA's neutrality for the time being.
Interactive Brokers Expands Offerings with Daily Options on French Stocks
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
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20-22 MAY 2024
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Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
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#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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