Published: Wed, March 08, 2017
Economy | By Melissa Porter

Australia dollar firms as RBA stands pat; NZ dollar on defensive

Australia dollar firms as RBA stands pat; NZ dollar on defensive

As expected, the Reserve Bank of Australia kept its benchmark interest rate unchanged at 1.50%.

Far from the rate rise many pundits were expecting for 2017, Governor Philip Lowe would have to slash the official cash rate from 1.5% to as low as 1% in order to keep inflation above its 2% target. "Exports have risen strongly and non-mining business investment has risen over the past year".

Firstly, he made the following comment: "Most measures of business and consumer confidence are at or above average".

"Today's RBA statement reveals a central bank pleased with both the improving global backdrop and the transition of the Australian economy to better growth and stronger employment".

RBA chose to retain its current outlook, seeing an optimistic future for economic growth supported by low levels of interest rates, while most financial institutions are still capable to lend good amounts. Borrowing for housing also picked up over the recent months. The RBA also restated that an appreciating Australian dollar would complicate the transition of the economy - a familiar trope for this and other trade-oriented regions. But the expansion was supported by household spending that was financed by drawing down savings instead of wage growth, which remains at a record low.

Speculation is growing that a shift in global inflation expectations, a resurgent United States economy, and the end to a near-decade long non-mining business investment strike will prompt the Reserve Bank to behind unwinding its recession-level monetary policy settings.

"Conditions in the housing market vary considerably around the country".

Our view remains that GDP growth will be closer to 2.0% this year than 3.0%, that growth will fall short of 3.0% next year too and that underlying inflation will stay further below 2.0% for longer.

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