RBA Minutes: Low Inflation Allowed For Continued Stimulus

RBA 061615

The members of the Reserve Bank of Australia's monetary policy board said that low inflation allowed them to keep the nation's benchmark lending rate steady at a record low, minutes from the bank's June meeting revealed on Tuesday.

Consumer prices were below trend and are projected to stay that way, allowing the bank to keep the rate unchanged at 1.75 percent after May's 25-basis point cut.

"Short-term measures of inflation expectations - from consumers, market economists, union officials and inflation swaps - had remained below average. Long-term inflation expectations had also remained below average," the minutes said.

The economy saw support from a weak Australian dollar - coupled with an increase in exports because of higher resource production.

Policymakers judged that holding the stance of policy at this meeting would be consistent with sustainable growth in the economy.

Recent data suggest overall growth in Australia is continuing, despite a very large decline in business investment.

In the first quarter, the economy had expanded 3.1 percent, which was the fastest growth in three and a half years.

"Growth over the year had increased to be a bit above estimates of potential growth, reflecting a stronger expansion in non-mining activity. This was being supported by low interest rates and the depreciation of the exchange rate since 2013," the minutes said.

Low interest rates have been supporting domestic demand and the lower exchange rate overall is helping the traded sector, the bank noted. Moreover, credit to businesses picked up, assisting the economy to make the necessary economic adjustments.

Although house prices started to rise again recently, considerable supply of apartments is expected to reach the market over the next couple of years.

"Following the reduction in the cash rate in May, the board judged that leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time," the minutes said.

Also on Tuesday, the Australian Bureau of Statistics said that house prices in Australia were down 0.2 percent on quarter in the first quarter of 2016.

That missed forecasts for an increase of 0.8 percent following the 0.2 percent gain in the previous three months.

On a yearly basis, house price advanced 6.8 percent - also beneath expectations for 7.5 percent and slowing from 8.7 percent in the three months prior.

This marked the first decline since the third quarter of 2012, due largely to declines in prices of attached dwellings - while established house prices were roughly flat.

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