Aussie interest rates on hold for a year now
> Analysts expect central bank to keep them at record lows of 1.5% amid strong currency, weak inflation
SYDNEY: Australia’s central bank yesterday marked a full year without changing interest rates, and many economists suspect rates could stay at record lows of 1.5% for yet another year as it wrestles with a strong currency and weak inflation.
The Reserve Bank of Australia (RBA) stepped up its rhetoric against a rising local dollar saying the higher exchange rate will further compress consumer prices, weighing on the outlook for growth and employment.
The Australian dollar has jumped about 8% since June to a two-year peak, largely driven by a battered greenback. It was last steady at US$0.8010.
In response the RBA inserted a new paragraph in its latest policy statement, saying, “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
While the RBA did sound upbeat about the overall economy, its optimism was restrained by tepid inflation, record-low wages growth and mounting consumer debt.
Subdued inflation, however, is not an Australian phenomenon. Consumer prices remain low or sluggish in most major economies including the US, Europe and China even as growth has stayed largely solid. That has partly led the Federal Reserve to tamp down on market expectations over the future pace of tightening.
Core inflation – the main focus for policymakers – has remained below the RBA’s target band since early 2016, prompting it to lower interest rates twice last year. The central bank expects a gradual pick-up in inflation and forecast the AU$1.7 trillion (RM5.83 trillion) to grow at around 3% over the next couple of years.
“The main surprise was a ramping up in the level of concern about the stronger Aussie,” said CBA economist Michael Blythe.
A majority of the 42 economists polled by Reuters forecast a steady rate outlook over a one-year horizon, with only nine expecting a rate hike. – Reuters