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RBA sees low rates aiding consumer spending, house construction
[SYDNEY] Australia's central bank said record-low interest rates are underpinning consumer spending and house building while a lower currency is improving firms' competitiveness.
"Members noted that recent domestic data had, on balance, been positive and judged that there were reasonable prospects for growth to increase gradually over the forecast period," the Reserve Bank of Australia said Tuesday in minutes of its Feb 2 policy meeting when rates were left unchanged at 2 per cent.
It reiterated the approach set out in recent communication that it will monitor whether strong jobs growth is sustained and whether recent global market turmoil affects the domestic economy. It also repeated that contained inflation provided further scope to ease should that be needed.
Governor Glenn Stevens is weighing a darkening global outlook and its impact on Australia, the most China-dependent economy in the developed world, against signs of improvement in the local economy following a record quarterly jobs gain. Market wobbles in China have seen its sharemarket tumble, capital flee at a record pace and the slowest expansion last quarter since 2009.
"One aspect of market concern was uncertainty about the Chinese authorities' intentions for the future value of the renminbi," the RBA said. "Members noted the challenges for the Chinese authorities in managing the exchange rate in the face of depreciation pressure from private capital outflows." Australia is grappling with weaker commodity prices as Chinese demand wanes and a mining investment boom unwinds. It has been aided by a currency depreciation of more than 30 per cent in the past three years as well as easy monetary policy.
"There continued to be evidence that very low interest rates were supporting growth in household consumption and dwelling investment and that the depreciation of the exchange rate was boosting demand for domestic production," the RBA said. "Output growth in the services sector, particularly household services, had been strong."
Following a faster expansion in the third quarter, the central bank tipped output growth had eased in the final three months of 2015, citing recent data on activity and trade.
"Over the period ahead, new information would enable the board to assess whether the recent improvement in labor market conditions was continuing and whether recent financial market turbulence presaged weaker global and domestic demand," it said.
"The board noted that the outlook for continued low inflation may provide scope for easier monetary policy, should that be appropriate to lend further support to demand."