Slow growth is expected to continue in the near term as the economy adjusts to lower levels of mining investments, says Glenn Stevens, Governor of the Reserve Bank of Australia (RBA), in his statement on monetary policy decision issued on Tuesday. He said the RBA Board decided to leave the cash rate unchanged at 2.5 per cent. Meanwhile, the Australian dollar, he said, has depreciated by around 15 per cent since early April, and was expected to depreciate further, however it would help to foster a rebalancing of growth in the economy.
Slow growth is expected to continue in the near term as the economy adjusts to lower levels of mining investments, says Glenn Stevens, Governor of the Reserve Bank of Australia (RBA)
The statement by Governor Stevens was issued followed the Board meeting to review the monetary policy
Governor Stevens pointed out that the current performance of the Australian economy is consistent with global growth figure. He noted that, performance has been below average; however, there were "reasonable prospects" for it to pick-up next year.
Commodity prices have declined from their peaks, but generally remain at high levels by historical standards, he said.
The overall, global financial conditions remain very accommodative. The recent assessment by markets of US monetary policy has led to a noticeable rise in sovereign bond yields, from exceptionally low levels.
Increased, volatility in financial markets has affected a number of emerging market economies in particular. However, Governor Stevens assured that, notwithstanding the higher volatility, Australian institutions have ample access to funding markets.
In Australia, the economy has been growing a bit below trend over the past year and Governor Stevens expected this to continue in the near term as the economy adjusted itself to lower levels of mining investment.
On the employment front, he pointed out that unemployment rate has edged higher.
On inflation, he said, most countries remain well contained. Inflation figures have been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.
The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values, and further effects can be expected over time, including from the declines in rates seen over recent months.
The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.
The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
In Tuesday's meeting, the RBA Board judged that the setting of monetary policy remained appropriate.
The statement added that the Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.
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