DOLLAR DIPS AS RBA HOLDS GROUND

Written on the 17 July 2013

DOLLAR DIPS AS RBA HOLDS GROUND

THE Reserve Bank of Australia has held its ground on interest rates for another month, but a dovish tone from Governor Glenn Stevens regarding the state of the local economy has put immediate pressure on the dollar.

The RBA, as expected, held the official cash rate at 2.75 per cent with Stevens citing higher unemployment and subdued household borrowings as a point of concern.

The Aussie dollar fell about half a cent against the US dollar in the aftermath of the interest rate announcement.

The market remains convinced that the RBA is not yet finished with its easing cycle – and more specifically Stevens comments that the dollar is still at a stubbornly “high level” despite depreciating about 10 per cent in recent months.

“Globally, financial conditions remain very accommodative,” Stevens says in his statement accompanying today’s decision.

“In Australia, the recent national accounts confirmed that the economy has been growing a bit below trend over the recent period.

“This is expected to continue in the near term as the economy adjusts to lower levels of mining investment.

“The unemployment rate has edged higher over the past year and growth in labour costs has moderated.

“Inflation has been consistent with the medium-term target and is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate.”

Today’s RBA decision has been met with disappointment from the Gold Coast development industry.

Gold Coast Logan Urban Development Institute of Australia branch president Steve Harrison (pictured) says it is a 'missed opportunity' to further stimulate the economy.

"Although we have had two interest rate cuts in a row, a third rate cut would have provided a much need stimulus to the regional economy," Harrison says.

"There is a real recovery becoming evident in the construction and development sector, and every step that could be taken to keep that momentum going would be welcome.

"With issues such as difficulty in obtaining finance for projects still threatening to hamper this expected growth, a decision to cut rates further would have sent a clear message the banks to make a stronger commitment to the region and ensure that the current level of activity does not falter.

"We need to encourage new projects to meet growing demand and will help to maintain the city's competitive edge as a world-class tourism destination and generate jobs for local people.

"Unless we maintain ongoing and sustainable growth there is a real risk that the region may become less attractive to further business investment."


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