RBA says low inflation may provide scope for easier monetary policy

Tuesday, Feb 16 2016

Australia’s central bank said record-low interest rates are underpinning consumer spending and house building while a lower currency is improving firms’ competitiveness. “Members noted that recent domestic data had, on balance, been positive and judged that there were reasonable prospects for growth to increase gradually over the forecast period,” the Reserve Bank of Australia said Tuesday in minutes of its Feb. 2 policy meeting when rates were left unchanged at 2 percent.

It reiterated the approach set out in recent communication that it will monitor whether strong jobs growth is sustained and whether recent global market turmoil affects the domestic economy. It also repeated that contained inflation provided further scope to ease should that be needed.

“One aspect of market concern was uncertainty about the Chinese authorities’ intentions for the future value of the renminbi,” the RBA said. “Members noted the challenges for the Chinese authorities in managing the exchange rate in the face of depreciation pressure from private capital outflows.” “There continued to be evidence that very low interest rates were supporting growth in household consumption and dwelling investment and that the depreciation of the exchange rate was boosting demand for domestic production,” the RBA said. “Output growth in the services sector, particularly household services, had been strong.”

“Over the period ahead, new information would enable the board to assess whether the recent improvement in labor market conditions was continuing and whether recent financial market turbulence presaged weaker global and domestic demand,” it said. “The board noted that the outlook for continued low inflation may provide scope for easier monetary policy, should that be appropriate to lend further support to demand.”

Aussie is currently being traded around 0.7160 area. Pair is likely to find support around 0.7070 handle and resistance above 0.7250 level. Later today, in the US session, Empire State Manufacturing Index figures are scheduled for a release.

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