HomeContributorsFundamental AnalysisAussie Falls As RBA Maintains Benchmark Rate At Record Low

Aussie Falls As RBA Maintains Benchmark Rate At Record Low

As expected by market participants, the Reserve Bank of Australia (RBA) today decided to keep rates unchanged at the historical low level of 1.5%. This comes at a time when major central banks around the world are either normalizing rates or are signalling that they’re getting closer to start tightening their respective monetary policies.

The RBA’s decision followed the release of the Australian retail sales data, which were published a few hours earlier. The figures showed retail sales growing by 0.6% month-on-month during May. This was a positive surprise relative to the 0.2% expected by analysts, but was below April’s respective growth rate at 1.0%. On Monday, other figures out of Australia showed an unexpected steep deterioration in building approvals by 5.6% and a slight improvement in the AIG manufacturing index, which rose to 55.0 from 54.8 in May.

The RBA, contrasting the recent hawkish signals from the Federal Reserve, European Central Bank, Bank of England and the Bank of Canada, stuck on its neutral monetary stance that has been in place since August 2016, the last time the Bank engaged in a rate cut. RBA policymakers repeated in today’s report that “holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”. In addition, they seemed less confident about Australia’s economic outlook, expressing concerns about the high household debt levels that could act as a drag on growth at a time of more or less stagnant wages.

Turning to the forex market’s reaction following the central bank’s meeting, the aussie steeply declined versus the dollar on the news. Specifically, aussie/dollar fell to as low as 0.7590. The pair traded at 0.7679 previously. It was last down more than seven-tenths of a percent on the day.

It should be noted that Australian inflation was released at 2.1% year-on-year in the first quarter of the year, a level that is within the RBA’s target range of 2-3%. In the meantime, GDP growth declined to 1.7% over the same period after a strong recovery in the fourth quarter of 2016.

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