FOREX NEWS: Can RBA Monetary Policy Stem the Slump in the AUD?
The Australian Central Bank left its interest rates or cash rate target unchanged at 2.5 percent, earlier on Tuesday. The cash rate target; also called the official cash rate or the benchmark interest rate, is the overnight interest rates paid by banks to borrow money from their counterparts.
In its first monetary policy meeting this year, the central bank kept the official rates on hold for a record sixth consecutive time. The previous instance of the RBA keeping rates on hold for an extended period was between November 2010 and October 2011. Interest rates were on hold at 4.75 percent, after which the interest rates were brought down to 4.50 percent in November 2011. The bank’s decision was on expected lines and the move was prompted by an unexpected rise in inflation last month, exceeding the RBA’s target of 2- 3 percent.
The Central bank Governor, Glenn Stevens, reiterated in a press release that the monetary policy was appropriate to support economic growth and maintain inflation within the bank’s parameters. Information available suggests consumer demand is stronger with business conditions and confidence indicators improving. Labor costs continued to remain low while on the other hand domestic prices continued its ascent. The statement also indicated that interest rates could be accommodative and overall credit growth low.
Finally, the RBA was of the opinion that in current circumstances, the most practical course of action would be to stabilize interest rates. The updated economic forecasts are due to be released by the central bank in its quarterly statement on Friday. The decision also comes on the back of other Central banks either keeping their monetary policies on hold or tightening them. The Australian dollar rallied across the board and was trading at more than two week highs versus the greenback at 0.8930 to the U.S. dollar, up more than 2 percent, at 5PM GMT, on Tuesday. The next RBA board meeting and the official interest rate announcement is slated for the 4th of March 2014.
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