RBA signals Australia not ready to join global policy unwind

[SYDNEY] Australia's central bank signaled it isn't ready to join global counterparts in unwinding policy stimulus as the outlook for property and jobs Down Under remain clouded, despite a more positive global picture.

In minutes of the Reserve Bank of Australia's July policy meeting released Tuesday, members also discussed the level of Australia's neutral interest rate, saying it had dropped since 2007 and now equated to a neutral nominal cash rate of around 3.5 per cent. The central bank added "there is significant uncertainty around this estimate." "The RBA minutes had a pretty positive tone and they've thrown out this idea that the neutral cash rate is 3.5, so people are like, well we're at 1.5 so that's super-accommodative and so forth," said Sally Auld, head of fixed-income and currency strategy for Australia at JPMorgan Chase & Co. "Two more Republican senators have decided not to vote in favor of this new health care bill repeal, so that's seen the US dollar weaken quite a bit." The Aussie dollar climbed to 78.65 U.S. cents at 12.17 pm in Sydney, compared with 78.09 cents before the release.

The RBA said it expected quarterly growth to have increased in the second quarter - despite disruptions to coal exports caused by Cyclone Debbie - after a weak first three months of the year that it mainly attributed to temporary factors. It also noted that state and the federal budgets suggested fiscal policy would be "more expansionary in 2017/18 than had previously been expected." The central bank has kept interest rates at a record-low 1.5 per cent since August as it tries to smooth the economy's transition away from mining investment-led growth. The cheap cash has sent house prices soaring in Sydney and Melbourne, while also encouraging residential construction that's employed many former miners. In other developed economies, meanwhile, stronger economic outlooks have prompted central bankers to discuss removing some of their stimulus.

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