RBA leaves door open for easing

SYDNEY: Australia’s central bank held its cash rate steady yesterday to confound calls for a cut and sending the local dollar sharply higher, though it did leave the door wide open for an easing at future policy meetings.

The currency jumped half a US cent after the Reserve Bank of Australia (RBA) said it was too early to follow February’s quarter point cut to a record low of 2.25%.

“The board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being,” RBA governor Glenn Stevens said after the bank’s monthly policy meeting.

“Further easing of policy may be appropriate over the period ahead. The board will further assess the case for such action at forthcoming meetings.”

The explicit easing bias was likely intended to limit upward pressure on the Australian dollar, given how many other central banks have joined the global rush to the bottom on rates.

China trimmed its rates over the weekend and the European Central Bank starts a trillion-euro quantitative easing plan this month.

Investors are still pricing in at least one more cut by the RBA, though the implied probability of a move in April shrank to around 60%, from near 100% previously.

“Every meeting from here is live,” said Tom Kennedy, an economist at JPMorgan Chase & Co.

“In terms of timing, the obvious one which stands out would be in May, when we get the statement of monetary policy, a new round of CPI forecasts and the bank will be able to explain their actions in more detail.”

Interbank futures took the decision hard as the market had priced in around a 54% chance of an easing this week. Fifteen of 29 analysts in a Reuters poll had also tipped a move this week.

Many argued the stimulus was needed to revive an economy that has been running below trend for more than two years, pushing up unemployment and dragging down inflation.

Particularly worrying was recent data showing mining investment in full retreat after a decade of madcap expansion, while other sectors seemed unprepared to fill the gap.

Fortunately the hundreds of billions spent on expanding mining production has led to a huge increase in export volumes which is flattering the country’s trading accounts.

The current account deficit shrank to A$9.6 billion in the fourth quarter of 2014, against forecasts of A$11 billion. Net exports added a healthy 0.7 percentage points to gross domestic product (GDP) in the quarter, according to data from the Australian Bureau of Statistics.

The GDP report is due today and analysts have been looking for a rise of around 0.5% in the quarter and 2.5% for the year.

That annual rate would actually be faster than the United States managed in 2014, but would still be sub-par for a nation that used to average at least 3.25%.

Low mortgage rates have certainly worked their magic on housing, with approvals to build new homes jumping 7.9% in January, when analysts had expected a small decline.

Approvals to build apartments surged almost 20% in January alone — surpassing detached houses for the first time ever — in a plus for construction jobs and consumer spending.

Less welcome to policymakers has been a surge in borrowing for property investment which is fuelling rapid price rises. Home prices in Sydney rose 1.4% in February to be 13.7% higher over a year, according to property consultant CoreLogic RPData.