heightened volatility. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative. In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. Con- sistent with developments in the labour market, overall GDP growth picked up over 2015, despite the contraction in mining investment. The pace of lending to businesses has also picked up. Inflation is quite low. Recent information has confirmed that growth in labour costs remains quite subdued. Given this, and with inflation also restrained elsewhere in the world, inflation in Australia is likely to remain low over the next year or two. Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending stan- dards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed com- position between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities. Decisions regarding the cash rate target are made by the Reserve Bank Board which meets each month and the outcomes and strategies are then explained in amedia release. The Australian dollar has appreciated somewhat recently. In part, this reflects some increase in commodity prices, but monetary develop- ments elsewhere in the world have also played a role. Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy. At today’s meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate. Over the period ahead, new information should allow the Board to assess the outlook for inflation and whether the improvement in labour market conditions evident last year is continuing. Continued low infla- tion would provide scope for easier policy, should that be appropriate to lend support to demand.
By Katie Davis W eak inflation numbers continue to hurt the Australian dollar on global markets against the US and other currencies. There is some debate amongst global economists that Malcolm Turnbull and Australia’s Liberal Party will most likely cut interest rates to the lowest seen on record come Budget Day as Australia’s consumer price index continues to fall. Australia’s Reserve Bank sets the target “cash rate,” which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. Decisions regarding the cash rate target are made by the Reserve Bank Board which meets each month and the outcomes and strategies are then explained in a media release. After April’s meeting the Australian Federal Reserve left the cash rate unchanged, which has not seen any movement since this time last year when it was lowered from 2.25 to its current rate of 2.00.
This is the report that was released by Australia’s Reserve Bank regard- ing their decision to leave the cash rate unchanged for April;
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
Recent information suggests that the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate has continued to moderate. Commodity prices have generally increased a little recently, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
Sentiment
in financial markets has improved recently after a period of
Source Reserve Bank of Australia - Media Release – April 2016
News of this report caused the largest one day market loss in eight months for the Australian dollar as global economists overspeculate that the Reserve Bank will cut the cash rate to 1.75 percent before Trea- surer Scott Morrison delivers his first budget. One thing that we do know is that this speculation of lowering rate is going to create addi- tional weakness of the Australian dollar on currency markets.
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MAY 2016 • SPOTLIGHT ON BUSINESS
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