World Economy

Economists React to RBA Minutes

RBA has also softened its objections  to a higher Australian dollar.RBA has also softened its objections  to a higher Australian dollar.

Australia’s central bank sees no need to follow its peers abroad and raise interest rates, noting price pressures remained subdued across the economy while households labored under a heavy load of debt.

Minutes of the Reserve Bank of Australia’s October meeting showed the policy-making board would not be rushed into matching policy tightening elsewhere, news outlets reported.

“Members observed that moves towards higher interest rates in other economies were a welcome development, but did not have mechanical implications for the setting of policy in Australia,” the minutes showed.

Paul Dales, chief Australia and New Zealand economist for Capital Economics said the “RBA went out of its way to stress that rising interest rates overseas ‘did not have any mechanical implications for the setting of policy in Australia’.” Dales noted this “was always going to be the case but it was aimed at the financial market who have recently raised their expectations for the future path of interest rates in Australia based on events overseas.”

Gareth Aird, senior economist, Commonwealth Bank of Australia said the reminder that domestic economic conditions would guide monetary policy was  “designed to hose down expectations of a near term rate hike”.

The RBA decided to leave the cash rate unchanged at 1.5% in October.

The comments from the RBA come as the Bank of Canada raised rates in September and the Bank of England Governor Mark Carney confirmed it is close to raising interest rates at its November meeting.

Dales said there were “few signs” that the RBA was close to changing its neutral bias to a tightening bias, even as the central bank said wage growth was “expected to increase gradually” contributing to a gradual rise in inflation.

“We still believe that sub-potential GDP growth and below-target inflation will mean the RBA won’t raise interest rates from 1.5% next year,” Dales added.

Aird noted the overall neutral tone of the minutes and said he expects the RBA to stay on hold “well into 2018 despite the ongoing improvement in the labor market”.

Tuesday’s minutes showed the RBA had also softened its objections to a higher Australian dollar by adding the caveat “material” to its usual warning on the currency, Reuters said.

“A further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation,” the minutes showed.

The local dollar is presently just under $0.7900, having fallen back from atop $0.8000 a couple of months ago.

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