RBA’s Stevens Says He Doesn’t See Need to Reduce Rates FurtherMichael Heath
Australia’s central bank Governor Glenn Stevens said he’s not sure how long a flagged period of interest-rate stability will last and doesn’t see the need to further loosen “very accommodative” policy at the moment.
“I haven’t said how long a period because I don’t know,” Stevens told a parliamentary panel in Sydney. “That’s a bit of a shift on our part, where we had been saying that there might be scope to go down a bit more if needed. I don’t think we do need to at this point in time.”
Stevens last month said a “period of stability in interest rates” is likely after extending a policy pause since the latest reduction in August took borrowing costs to a record-low 2.5 percent. Policy makers are seeking to engineer a transition from a resource-investment boom to increased residential construction and household consumption.
The nation’s currency has rebounded about 4 percent since the RBA’s Feb. 4 decision as data showed rising housing prices, surging building approvals, and accelerating economic growth even as the jobless rate jumped in January to a 10-year high. Asked about means to lower the currency, Stevens today said so-called jawboning “has a limited effect” on the currency.
“I’ve said that I thought in the 90s or over a dollar was rather higher than any plausible assessment you could come to based on our costs and productivity relative to other countries. I haven’t changed my view about that,” he said. “I don’t resile from what I’ve said before but I have nothing new to say.”
The Australian dollar traded at 90.80 U.S. cents at 11:56 a.m. in Sydney. Traders are pricing in about a 17 percent chance of a quarter percentage point rate increase in the cash rate in September, according to swaps data compiled by Bloomberg.
Aussie Price Impact
Australia’s dollar dropped about 14 percent last year, the steepest decline after the yen among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. It accelerated its decline in the final quarter of 2013 as policy makers sought to talk down the Aussie. Stevens said the decline in the currency had contributed to a rise in consumer prices in the fourth quarter.
“Our assessment is that inflation is not quite as low as it might have looked six to twelve months ago, but nor is it accelerating to the extent a literal reading of the latest data might suggest,” Stevens said. “The general situation – 18 months of below-trend growth, a rise in unemployment, a marked slowdown in wages – is not one that would be obviously associated with a sustained rise in price pressures. Our view remains that the outlook for inflation, while a little higher than before, is still consistent with the medium-term target.”
The RBA cut rates to support the economy as a mining boom moves from the employment-intensive investment phase to one of increased supply and higher exports.
“It is clear that dwelling investment activity will rise strongly over the period ahead,” Stevens said. “The question then is: will the additional demand likely to be generated outside mining as a result of these trends be just the right amount to offset the large decline in mining investment spending, so keeping the economy near full employment? No one can answer that question with great confidence.”
Adam Boyton, chief economist for Australia at Deutsche Bank AG in Sydney, said Stevens’s comments indicate the cash rate is likely to remain unchanged for some time.
“The governor appears to have reinforced the ’low-for-long’ message in the bank’s current policy assessment,” he said in a research report. “It seems clear from this that the hurdle for the bank to move away from its current neutral bias is relatively high.”