Australia central bank holds rates, takes upbeat tone on growth

Cornelia Mascio
Febbraio 7, 2017

The Reserve Bank of Australia has revealed the decision of its first monthly board meeting of the year. The RBA is expected to cut the forecast by 1 percentage points.

Miley Cyrus throws money in the air as she performs at the opening night of her Bangerz Tour in Australia at Rod Laver Arena on October 10, 2014 in Melbourne, Australia. Consumption growth is expected to pick up from recent outcomes, but to remain moderate.

The Australian Dollar Pound (AUD GBP) exchange rate was met by increased volatility at the start of the week as prices for iron ore stumbled following the reopening of the Chinese market.

In its assessment of domestic economic conditions, the central bank said that its price growth outlook is largely unchanged, noting that while inflation remains "quite low" the headline rate is seen surpassing 2 percent in 2017. The statement made it clear that the RBA is still concerned by the risks to financial stability posed by the hot housing market. While growth in rents is the slowest it has been in decades, borrowing for housing has picked up slightly due to stronger demand from investors.

Australia's central bank kept its record low interest rate on Tuesday as policymakers assessed the current stance as appropriate to maintain sustainable growth and to achieve the inflation target. In the accompanying monetary policy statement, the bank gave no indication that interest rates were likely to change in the foreseeable future, delivering a neutral bias at the conclusion of the statement.

"Meanwhile, the so-called "Trump Trade" is gaining momentum, with hopes of deregulation and a booming US economy adding to the likelihood of interest rate hikes by the US Federal Reserve leading to rises in the US dollar, which is expected to cause further volatility for our currency", he added.

Year-to-date, the iShares MSCI Australia ETF (EWA) gained 5.7%.

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