Tuesday, 02 June, 2015

RBA Coy on Further Rate Cuts After Holding Fire; Currency Jumps

(Bloomberg) — Australia left its key interest rate unchanged at a record low and was coy about whether further cuts would be needed to boost growth, sending the currency higher. Central bank Governor Glenn Stevens and his board left the cash rate at 2 percent in Sydney Tuesday, as predicted by traders and economists. “Monetary policy needs to be accommodative” as the economy is likely to operate with spare capacity “for some time yet,” he said in a statement. Australia has so far had little success in stimulating industries as a decade-long mining investment boom winds down. Businesses plan to cut investment in the next 12 months by the most on record as firms decide they can meet demand with existing capacity amid weak wage growth. “They’re kind of in a wait-and-see mode,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “I wouldn’t say there’s a clear easing bias but we know from the forecasts that it is probably more implicit.” Stevens said in the final paragraph of his statement that the central bank would use data over the period ahead to determine whether its policy was correctly set to boost growth and keep inflation consistent with its target. The Australian dollar rose half a U.S. cent after the statement failed to chart an explicit course for policy and was trading at 76.74 cents at 2:55 p.m. The stock market extended its decline to 1.4 percent. Australia, an engine room of the decade-long global commodity boom, forecasts a 90 percent plunge in spending on mining projects, calling time on its biggest resources bonanza since the 1850s gold rush. Economic Slowdown The nation’s economic growth probably cooled to 2 percent in the first quarter from a year earlier, the slowest pace since 2013, economists predicted ahead of data tomorrow. Yet the labor market has remained relatively resilient, aided by weaker wages, with unemployment hovering around 6.2 percent. Cheap borrowing costs have also boosted the property market: prices in Sydney rose 15 percent in May from a year earlier and Australia’s major banks have said they will curb growth in home loans to investors. Australia’s most-senior economic bureaucrat this week issued one of the strongest warnings yet by a government official. “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney — unequivocally,” Treasury Secretary John Fraser said in testimony before a parliamentary committee in Canberra Monday. “Frankly, whatever the data says, just casual observation would tell you that’s the case.” Archr LLP is Authorised and regulated by the Financial Conduct Authority (FCA reference 617163). Archr LLP is not covered by the Financial Services Compensation Scheme (FSCS). Archr is registered in England and Wales No. OC371018. Registered office Chancery House, 30 St Johns Road, Woking, Surrey, GU21 7SA This message may contain confidential or privileged information. If you are not the intended recipient, please advise us immediately and delete this message. The unauthorised use, disclosure, distribution and/or copying of this e-mail or any information it contains is prohibited. This information is not, and should not be construed as, a recommendation, solicitation or offer to buy or sell any securities or related financial products. This information does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it. You are receiving this email because you are a valued client of Archr.