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RBA reiterates stable outlook for interest rates

Reserve Bank of Australia reiterates stable outlook for interest rates

By Jonathan Underhill

Aug. 5 (BusinessDesk) - The Reserve Bank of Australia kept the cash rate unchanged at 2.5 percent and reiterated that a "period of stability" in interest rates is warranted given the outlook for inflation.

Governor Glenn Stevens released a statement that was little changed from what he said on July 1, although this time he noted an increase in inflation, which he attributed to an Australian dollar that has fallen from its highs of last year. That had been somewhat offset by slower wages growth, he said. The Australian dollar rose to 93.39 US cents after the statement from 93.22 cents immediately before. It was as high as US$1.056 in April last year.

"Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year," Stevens said. "But growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate."

Australia's consumer price index rose 0.8 percent in the second quarter, based on the trimmed mean gauge, for an annual 2.9 percent on that basis, beating estimates and sending the dollar higher on the day it was released last month. Stevens repeated that the exchange rate was still high by historical standards, given the the decline in the prices of export commodities, and would provide "less assistance than it might in achieving balanced growth in the economy."

He reiterated that the global economy is growing at a moderate pace, with China's growth generally in line with policymakers' objectives. He repeated that overall financial conditions remain very accommodative.

Stevens also reiterated that while there has been some improvement in labour market indicators this year, "it will probably be some time yet before unemployment declined consistently."


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