Further rate cuts possible in New Year: RBA

by 22 Nov 2013
The reserve bank is open to the possibility of further rate cuts in the New Year due to an “uncomfortably high” Australian dollar.

In the minutes of the Reserve Bank’s November meeting policymakers decided to keep the official rate unchanged at 2.5 per cent, but concluded they would “not close off the possibility” of additional rate cuts.

“Given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target,” said the minutes.

It was noted that the effect of previous rate cuts had already been felt in the “strengthening” housing market, but that it would take some time for effects to feed through to other sectors of the economy.
It was reiterated that the currency needs to be lower to ensure “balanced growth” in the economy.

Furthermore, in a speech at the Australian Business Economist dinner last night RBA governor Glenn Stevens said he remains "open-minded" about using foreign exchange intervention to weaken Australia's currency.

"In this episode so far, the bank has not been convinced that large-scale intervention clearly passed the test of effectiveness versus cost," said Stevens.

''But that doesn't mean we will always eschew intervention. In fact we remain open-minded on the issue. Our position has long been, and remains, that foreign exchange intervention can - judiciously used in the right circumstances - be effective and useful. 

''It can't make up for weaknesses in other policy areas, and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the tool kit."

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