RBA Says Aussie Still High as Period of Rate Stability Repeated

Australia’s central bank repeated that the nation’s currency is still too strong to help rebalance the economy and discussed the need for banks to maintain high lending standards.

The RBA noted that while the currency had declined against the U.S. dollar, it remained around levels seen earlier in the year. The bank said borrowing costs have fallen further as competition increased and “members discussed the importance of lenders maintaining strong lending standards.”

The currency “remained high by historical standards -- particularly given recent declines in key commodity prices -- and was offering less assistance than would normally be expected in achieving balanced growth,” policy makers said in minutes today of the Oct. 7 meeting where they kept the cash rate at 2.5 percent. “Members considered that the most prudent course was likely to be a period of stability in interest rates.”

Governor Glenn Stevens has signaled further cuts in the cash rate are unlikely as they would foster a build-up of risk in an economy where house prices have risen 14.3 percent in Sydney in the year through September. The board had cut rates to encourage non-mining businesses to boost spending in order to compensate for waning resource investment.

“Members noted that more timely indicators suggested that moderate growth overall had continued into the September quarter,” the Reserve Bank of Australia said in the minutes.

Gyrating Numbers

Australia’s gyrating jobs figures have made it harder for the RBA and investors to gauge the impact of record-low interest rates on the nation’s economy. The number of people employed fell by 29,700 last month after rising 32,100 in August, the statistics bureau said Oct. 9. It announced a day earlier a review of methodology designed to smooth seasonal factors that produced a record 121,000 increase in jobs in August and would’ve shown a 172,000 loss in September.

The RBA said today the “volatility” in the employment report meant the board based its assessment on a range of factors. “While forward-looking indicators pointed to modest employment growth in the months ahead, there was a degree of spare capacity in the labor market and it would probably be some time before the unemployment rate declined consistently,” it said.

Australia’s currency has fallen about 6 percent in the past three months, declining from a recent peak in early July of 95 U.S. cents.

Commodities Fall

“The Australian dollar was now around its January low against the U.S. dollar but remained a little higher on a trade-weighted basis than earlier in the year,” the RBA said.

Traders priced in 9 basis points of rate cuts over the next 12 months before the release of the minutes today, compared with 3 basis points of increases on Oct. 10, according to swaps data compiled by Credit Suisse Group AG.

Commodity prices have been declining as new mines came online -- though the RBA noted most Australian iron ore mines remain profitable at lower prices -- and demand for steel making ingredients in China, Australia’s biggest trading partner, eased with the housing market.

“In China, some indicators of economic conditions had softened a little,” the RBA said. “Members were briefed that the Chinese authorities had scope to ease policy if needed to support GDP growth. In the property market, conditions had continued to soften.”

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