August 11, 2014
The Reserve Bank of Australia has forecast that the cash rate will remain at a record-low 2.5 per cent for at least one more year. The board agreed that a period of stable interest rates was the most sensible course of action, according to the minutes of its recent monthly meeting.
“In Australia, market expectations of future cash rates were little changed over the past month and the cash rate was currently expected to remain unchanged for at least the next 12 months,” the board said.
The decision to leave the cash rate unchanged was partly due to an expected slowing in GDP and resource export growth, according to the minutes of the meeting.
“With growth in resource exports expected to ease back, GDP growth was forecast to be a little below trend over the next year or so, before picking up thereafter,” the board said.
Other reasons that swayed the board’s decision were the historically high exchange rate and the significant amount of monetary stimulus already in place to support economic activity.
“The exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy,” the board said.
Despite low interest rates working to support demand, the board said it was difficult to predict the extent to which this would offset the anticipated decline in mining investment and the effect of planned fiscal consolidation.