Australia’s central bank has decided to maintain the status quo on interest rates. Accordingly, the RBA meeting on Tuesday left the rates at a record-low of 2 percent where they had been languishing for nearly a year.
But it warned of challenges posed by the rising Australian dollar to the transition of the broader economy and hinted that rate cuts are in the offing, maybe, later in the year.
“The Australian dollar has appreciated somewhat recently. In part, this reflects some increase in commodity prices, but monetary developments elsewhere in the world have also played a role,” Reserve Bank of Australia Governor Glenn Stevens said.
The combo of Australia’s good credit rating and relatively high rates has raised the appetite for Australian dollar-denominated assets like government bonds, reports The Wall Street Journal.
At Reserve Bank of Australia’s April monetary policy meeting, the prospects for a continued growth in the economy was sounded out. It noted that the inflation is under control and the current setting of monetary policy looks appropriate.
After the last RBA meeting, the Aussie dollar strengthened 6.5 percent against the US dollar and 5.7 percent against the Chinese Yen. There is fear that further appreciation would slow the Australian economic growth.
“Some in the markets were clearly expecting a stronger jawbone or even a rate cut, and the Aussie rallied 0.8% on the release,” said Angus Nicholson at IG in Melbourne.
Most analysts predicted a high chance of RBA cutting interest rates again as the domestic economic data came out quite positive since the previous meeting. The RBA has been mulling that future policy would depend on how the economic data shapes up, reports Pound Sterling Live.
According to analysts, the rise in the Aussie dollar is an outcome of a recovery in commodity prices and the US Fed’s backtracking on interest rate hikes.