Tuesday, 05 May, 2015

Australia Cuts Key Rate to Record 2%, Sees Stronger Households

(Bloomberg) — Australia cut interest rates to a fresh record low to help ease pressure from a strong currency, and said there are signs of improving household spending. The local dollar advanced. The central bank lowered the key rate to 2 percent from 2.25 percent Tuesday, as predicted by traders and economists. Governor Glenn Stevens said in an accompanying statement “the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.” Policy makers reiterated a warning that investment in industries outside mining, which were supposed to pick up slack in the economy, could fall. Stevens, in his statement, cited a better jobs market while noting a subdued contribution from the government, which is due to release its annual budget May 12. “The bias looks reasonably neutral,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “We’re of the view that they’re likely to sit on their hands for quite some time. Probably for six months.” The Australian dollar climbed after the decision, trading at 78.91 U.S. cents at 2:54 p.m. in Sydney from 78.53 cents prior to the release. Economic Outlook The Reserve Bank of Australia will release updated quarterly economic forecasts Friday, providing an insight into the growth outlook. The currency is proving inconvenient, jumping 4 percent since the April 7 meeting and the best performer among major currencies after the Norwegian Krone over the period. “The Australian dollar has declined noticeably against a rising U.S. dollar over the past year, though less so against a basket of currencies,” Stevens said. “Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.” The outlook for Australia’s key trading partner, China, remains clouded as growth cools in the world’s second-largest economy. A Chinese manufacturing gauge released Monday trailed economists’ estimates in April as new orders declined. Iron ore, Australia’s biggest export, sank to a 10-year low at the start of April before going on to cap the biggest monthly gain in almost two years as BHP Billiton Ltd. said it was deferring port works, restraining the pace of its expansion. Jobs Market Mitigating against further rate cuts are data last month that showed unemployment unexpectedly fell to 6.1 percent in March, as the economy added 37,700 jobs, more than double the number of positions predicted by economists. Sydney home prices also climbed 14.5 percent in April from a year earlier as buyers responded to record-low borrowing costs. “The hurdle to going below 2 percent will be formidable,” Bill Evans, chief economist at Westpac Banking Corp., said in a research report before the decision. The RBA is trying to encourage growth in services, manufacturing and retailing to offset a decline in mining investment that helped drive the past decade of Australia’s 24 years of growth. It’s had to cut rates to offset a currency propped up by funds seeking higher yields as counterparts in Europe, Japan and the U.S. pursue quantitative easing. Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. This email has been scanned for viruses and malware, and may have been automatically archived by Mimecast Ltd, an innovator in Software as a Service (SaaS) for business. Providing a safer and more useful place for your human generated data. Specializing in; Security, archiving and compliance. To find out more visit the Mimecast website.