Australia’s central bank maintained the option of loosening monetary policy further as it weighed an “uncomfortably high” currency against signs interest-rate cuts were working to stimulate the housing market and economy.
“Given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady,” the Reserve Bank of Australia said in minutes released today of its Dec. 3 meeting, where it held the rate at a record-low 2.5 percent. It said the board didn’t want to “close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity.”
Markets and economists predict the central bank will leave rates unchanged in the near term to avoid a growth gap emerging as mining companies plan fewer projects. Low borrowing costs are driving up home prices, suggesting the RBA may be reluctant to add to its 2.25 percentage points of rate cuts since late 2011.
Australia’s dollar has dropped 12 percent this year, the steepest decline after the yen among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The Aussie traded at 89.43 U.S. cents at 11:38 a.m. in Sydney.
“While the exchange rate had depreciated over the month, members agreed that it remained uncomfortably high and a lower level would likely be needed to achieve balanced growth,” the minutes showed.
The Aussie climbed almost 50 percent in the four years ended Dec. 31 as the nation escaped the 2009 global recession and the China-led commodities-investment boom spurred growth. That squeezed manufacturers and tourism operators in Australia’s southeast, spurring job losses.
General Motors Co.’s Holden unit said last week it will cease making cars in Australia in 2017, with about 2,900 employees set to lose their jobs at the automaker’s plants in South Australia and Victoria. Coming after Ford Motor Co.’s May announcement that it will exit in 2016, GM’s decision raises risks to the sustainability of the supply chain for the third carmaker in Australia, Toyota Motor Corp.
In an interview published in the Australian Financial Review Dec. 13, the governor said a level of 85 U.S. cents “would be closer to the mark than 95 cents.” Last month, he put markets on notice, saying, while the benefits of intervention haven’t “so far” outweighed the costs, it “doesn’t mean we will always eschew” currency sales.
Stevens’s two-year easing cycle is boosting home prices.
“There had been further signs of the stimulatory effects of low interest rates, most notably in the housing market, and additional effects were still likely to be coming through,” the minutes today showed.
The average home price in Australia’s biggest cities rose 8 percent in November from a year earlier, the biggest annual gain since the year ended Oct. 31, 2010, to an all-time high of A$606,003, according to the RP Data-Rismark home value index. Prices in Sydney surged 14 percent in the 11 months to Nov. 30 to a record A$724,628.
The RBA noted “tentative signs” of stabilization in forward-looking indicators of labor demand. Australian employers boosted payrolls in November as the number of people employed rose by 21,000, the statistics bureau said in Sydney Dec. 12.
Recent data suggested economic growth remained below trend in the second half, the minutes showed.
Australia’s economy expanded slower than economists forecast last quarter after households boosted savings. Third-quarter gross domestic product advanced 0.6 percent from the prior three months, when it rose a revised 0.7 percent, government data showed Dec. 4.
“At recent meetings, the board had judged that leaving the cash rate unchanged was appropriate while continuing to gauge the effects of the substantial degree of monetary policy stimulus that had already been put in place,” the minutes showed.
Stevens will speak before the House economics committee tomorrow, the day of a Federal Reserve policy decision as prospects build the U.S. will trim its $85 billion in monthly asset purchases.
To contact the reporter on this story: Malcolm Scott in Sydney at email@example.com
To contact the editor responsible for this story: Stephanie Phang at firstname.lastname@example.org