Reserve Bank Leaves Interest Rates on Hold in April

Posted on April 9th, 2014 · Posted in News

The Reserve Bank has left official interest rates on hold at 2.5% for the eighth straight month.

The Australian dollar initially jumped on the rates decision, briefly reaching a four-month high of just over 93 US cents, but had eased back to 92.65 US cents by 3:28pm (AEDT) once traders digested the RBA governor’s statement, where Glenn Stevens again described the currency as “high by historical standards”.

“The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months,” he lamented.

RBC Capital Markets senior economist Su-Lin Ong says the Reserve Bank had to express some discomfort about the currency or risk it jumping further.

“It’s a bit of an unspoken acknowledgment that there’s not much the RBA can do about the exchange rate,” she told Reuters.  “To have said absolutely nothing new on the exchange rate would have been a green light for it to go a lot higher, but adding that small line has just sort of capped it for now.”

However, there is considerable disagreement emerging amongst analysts about the medium-term outlook for rates, with some economists forecasting rate rises later this year, some expecting the first increase sometime next year, and a shrinking handful still predicting one more rate cut.

Home price data released last week has raised expectations that rate rises may come sooner than previously expected, with the figures showing the biggest monthly surge in the 18-year history of RP Data – Rismark’s index.  The surge in home prices rated only a passing mention in the governor’s statement though.

“Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments,” Mr Stevens observed.  “Credit growth is slowly picking up. Dwelling prices have increased significantly over the past year.”

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