RBA happier with dollar and the economy

6.-RBA-happier-with-dollar-and-the-economy

By Jason Cadden
Sydney
(Australian Associated Press)

The Reserve Bank appears happier about the economy and the falling Australian dollar, making the chance of another interest rate cut less likely in the near future.

The RBA board on Tuesday left the cash rate at a record low of two per cent for a third straight month after making quarter of a percentage point cuts in May and February.

Governor Glenn Stevens gave an upbeat assessment of the Australian economy and refrained from repeating his recent concerns about the dollar being overvalued.

The Australian dollar has fallen about 10 US cents since January to around 73 US cents.

Mr Stevens attributed the falls to drops in the prices of key commodities, which include Australia’s biggest export iron ore.

On the economy, he said while the rate of growth had been below longer-term averages, employment growth was stronger in the past year and unemployment steady.

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet,” he said.

CommSec economist Savanth Sebastian believes the bank is now less likely to cut its interest rate again for the foreseeable future.

“The comments about the labour market is resonating with the picture that’s been painted from them over the last few months, with an improvement on hours worked and with jobs ads continuing to lift,” he said.

Mr Sebastian said the RBA would also be encouraged by Tuesday’s ANZ-Roy Morgan weekly consumer survey showing that confidence in family finances at a seven-year high.

But AMP Capital chief economist Shane Oliver says while it’s a close call, the RBA could cut the cash rate by the end of December.

He pointed to a poor business investment outlook, greater-than-expected weakness in commodity prices and the Australian dollar remaining too high as factors that could influence a rate cut.

An expected slowdown in Sydney and Melbourne’s soaring house prices and the recent hikes in investor home loan rates by the big banks could also entice the RBA to cut, Dr Oliver said.

The Australian dollar shot up more than half a US cent after the RBA’s rates announcement.

Forex.com research analyst Chris Tedder said the central bank’s change of tune on the currency was a game changer.

“It was the best possible outcome for the Australian dollar given the RBA held the cash rate steady and neglected to verbally assault the currency,” he said.

Mr Stevens said an expected interest rate hike by the US Federal Reserve later this year will also help the Australian economy.

A Fed rate hike will push the Australian dollar even lower, making locally produced goods more competitive with imports.

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