You are here

Australian dollar much closer to desired levels: RBA

RBA596.PNG
A top Australian central banker said on Thursday that low interest rates globally were keeping the local dollar higher than desired, but added it was much closer to appropriate levels than at any time in the past couple of years.

[SYDNEY] A top Australian central banker said on Thursday that low interest rates globally were keeping the local dollar higher than desired, but added it was much closer to appropriate levels than at any time in the past couple of years.

Philip Lowe, Deputy Governor of the Reserve Bank of Australia (RBA) also said there was scope to cut domestic rates further if needed, though he offered no guidance on how likely such an easing would be.

Asked for his target for the Australian dollar, Mr Lowe said he suspected the currency was still too high but that it was also much, much closer" to where it needed to be to support growth.

The comment was taken as a softening in the RBA's long-standing verbal campaign for a lower currency and gave the Australian dollar a brief lift to US$0.7830.

Mr Lowe was less emphatic about interest rates following the central bank's decision to skip a back-to-back easing at its March policy meeting this week.

When the RBA cut rates to a record low of 2.25 per cent in February it was "not because things had turned for the worse,"said Mr Lowe, but because there were not enough compelling signs of a pick up in the economy.

Government data out this week showed Australia's economic growth slowed to 2.5 per cent last year, well short of the 3.25 to 3.5 per cent pace that analysts consider ideal.

The sub par performance looks to have extended into this quarter, with consumer and business confidence average at best.

Figures from the Australian Bureau of Statistics out on Thursday showed retail sales rose a moderate 0.4 per cent in January, with strength in department stores, eating out and household goods offset by a sharp fall in food retailing. "Activity is ok without being great," said Savanth Sebastian, an economist at CommSec. "Policymakers would be hoping that the mixed confidence readings in recent weeks don't result in a further pullback in spending." That was one reason CommSec expects the RBA will choose to cut rates again, likely in May.

Financial markets tend to agree with interbank futures implying a 90 per cent probability of an easing in May.

In his speech to an economics conference, Mr Lowe did caution that low rates, both at home and abroad, were leading to rising prices for property and equities that needed to be "watched carefully." The RBA has expressed concerns that debt-fuelled investment in housing was pushing up prices in the inner cities of Sydney and Melbourne, which left unchecked could ultimately hurt bank balance sheets and the economy in general.

REUTERS