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Australia's central bank says A$ needs to fall further

Tuesday, December 16, 2014 - 09:22
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Australia's central bank felt a further decline in the local dollar was needed to help cushion the economy from falling resource prices when deciding to hold rates at record lows earlier this month.

[SYDNEY] Australia's central bank felt a further decline in the local dollar was needed to help cushion the economy from falling resource prices when deciding to hold rates at record lows earlier this month.

In minutes of its December policy meeting, the Reserve Bank of Australia (RBA) said its board had noted that financial markets were wagering on another cut in interest rates during 2015 and "discussed the factors that might be producing such an expectation." The board at its Dec 2 meeting decided to keep rates unchanged at 2.5 per cent, where they have been for almost 16 months. "Members considered that the most prudent course was likely to be a period of stability in interest rates," the minutes showed.

Financial markets recently moved to price in a further cut to 2.25 per cent following disappointing economic growth data.

However, in an interview last week RBA Governor Glenn Stevens highlighted the limits of monetary policy, instead putting the onus on a weaker local currency to deliver any further easing.

The policy minutes showed the RBA still felt the Australian dollar was above most estimates of its fundamental value, particularly given steep falls in prices for some of the country's major commodity exports. "Members agreed that further exchange rate depreciation was likely to be needed to achieve balanced growth in the economy,"the minutes showed.

REUTERS