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TOPIC: Low interest rates set to continue: Reserve Bank of Australia

Low interest rates set to continue: Reserve Bank of Australia 09 May 2014 21:26 #1

  • novum
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The Reserve Bank has flagged a continuation of low interest rates for some time as the economy continues to adjust to the fall-off in mining investment amid an uncertain outlook.

The central bank revised its growth forecast for June 2014 to 3 per cent from 2.75 per cent on the back of the continued housing boom and a more positive outlook for consumer spending. But it lowered its medium-term growth expectations by 0.25 percentage points amid forecasts of continued strength in the Australian dollar.

The central bank also lowered its inflation outlook for June from 3 per cent to 2.75 per cent, after a softer-than-expected reading of first-quarter CPI.

"Since last August, when the cash rate reached its current low level of 2.5 per cent, evidence of the effects of the substantial degree of stimulus already imparted has continued to accumulate," the RBA said in its quarterly Statement of Monetary Policy, which was published on Friday.

"At the same time, the economy continues to face some significant headwinds, with the large decline in resources sector capital spending getting underway and fiscal consolidation in prospect."

Economy pulled in different directions

The tone of the report was a reflection of the various factors pushing and pulling the economy in different directions, ANZ's chief economist for Australia, Ivan Colhoun, said.

One other side is the decline in resources investment and an expected tough federal budget next week. On the other side is the housing boom, recent improvements in consumer spending and business conditions.

"The [RBA] concludes that aggregate demand could be weaker or stronger than expected over the next couple of years depending on the balance of two key forces - the decline in mining investment and the pick-up in activity in the non-mining economy," Mr Colhoun said in a note.

The Reserve Bank noted again that the exchange rate remained high despite its falls last year, and that commodity prices have continued to decline over the past few months.

"The outlook is uncertain but as currently assessed suggests that a degree of spare capacity will be present for much of the forecast period," the RBA said.

"Given that assessment, the Board's view is that the current accommodative monetary policy setting is likely to be appropriate for some time yet."

The Australian dollar, which had been easing early Friday, slipped slightly on the back of the release of the SOMP. The local unit briefly slipped below US93.50¢ but retraced some of its losses and was buying US93.56¢ just before mid-day.

Labour market

The Reserve Bank continued its cautiously optimistic outlook for the jobs market, which it had first raised in Tuesday's monthly board meeting statement after it left the cash rate on hold at 2.5 per cent for the ninth-straight month.

The slight shift towards a more positive outlook for employment was tempered by caution that "there is a fair degree of spare capacity in the labour market".

"In particular, the unemployment rate remains high relative to its recent history and the participation rate is around the lowest level of the past eight years," the central bank warned.

"Also, broader measures of labour underutilisation remain relatively high. Measures of underemployment, which capture those employed who want to work more hours, remain close to their highest levels in the past decade despite declining slightly over the past couple of quarters."

Will the budget hurt the economy's transition?

CIti economists Paul Brennan and Josh Williamson warned that the RBA's forecasts did not include an assessment of the possible impact of the budget on the economy.

"The SOMP notes 'planned fiscal consolidation' will be a headwind but as far as we can tell hasn't been formally incorporated into the SOMP's forecasts. This is fair enough as the federal Budget isn't released until next Tuesday," the economists said in a note. "But given media and government comments so far, it is clear the budget will pose new headwinds to the economic outlook."


Source: www.smh.com.au/business/the-economy/low-interest-rates-set-to-continue-rba-20140509-37znj.html
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
Last Edit: 09 May 2014 21:28 by novum.
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Low interest rates set to continue: Reserve Bank of Australia 09 May 2014 21:28 #2

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novum wrote:
The central bank revised its growth forecast for June 2014 to 3 per cent from 2.75 per cent on the back of the continued housing boom

Well more houses may be getting built but seems prices are falling.

Have fallen significantly in some places since just before the GFC.

So a boom for some builders perhaps, but not for current homeowners. :think:

novum wrote:
The Australian dollar, which had been easing early Friday, slipped slightly on the back of the release of the SOMP. The local unit briefly slipped below US93.50¢ but retraced some of its losses and was buying US93.56¢ just before mid-day.

Economists were forecasting the dollar would go into the low 80 cents and perhaps 70's by the end of the year.

Cant see it yet!
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
Last Edit: 09 May 2014 21:32 by novum.
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Low interest rates set to continue: Reserve Bank of Australia 09 May 2014 21:40 #3

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Summary - The interest rates show that the economy is still screwed basically. :chuckle:

Its one reason you can buy mega depreciated Broadmeadows and Elizabeth built bogan mobiles for pocket change. :killinme:

Ive never seen secondhand cars so cheap in Australia... for once there are comparatively cheaper cars than in the USA, in particular locally built Fords and GM.

And South Australia made vehicle registrations slightly cheaper! Wow... they hardly ever go the other way. I think that speaks volumes. Probably to increase participation because people are registering less vehicles.

There is much less spare money around and/or people are keeping it in their pockets. The RBA's monetary policy reflects this.

From memory, Australia has had 11 successive interest rate cuts... that is, the rates have dropped 11 times in a row, and not once gone the other way, on their way down.
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
Last Edit: 09 May 2014 22:21 by novum.
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