RTTNews - Tuesday, the Reserve Bank of Australia retained its cash rate at 3% as expected for third straight month. The official cash rate now stands at its lowest level in 49 years.
Australian economic conditions have to date not been as weak as expected a few months ago. However, output was sluggish and capacity utilization fell back to near average levels and the Board sees further decline over the rest of the year. Again, weak demand for labor is lowering labor cost growth. These factors would abate inflation over the period ahead, the central bank assessed.
RBA Governor, Glenn Stevens said, The Board's current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed. He added, In assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity.
Stevens has slashed the cash rate by 125 basis points since December 2008.
Monetary policy eased considerably. Despite slight increases seen recently, market and mortgage interest rates stayed at low levels by historical standards. Business loan rates were also below average and the effects of these changes would be coming through for some time yet. Fiscal steps are providing considerable support for demand.
Further, a pick up in housing credit demand indicates robust dwelling activity later this year. As companies are postponing their investment intentions, business borrowings are easing. Large firms have good access to equity capital, which is assisting in strengthening their financial structures.
Regarding global economy, Stevens said after a sharp contraction in demand in the December and March quarters, the global economy is stabilizing. Downside risks to the outlook diminished with improvement in global financial market situations this year and steps to strengthen balance sheets of key financial institutions under way.
On June 4, Stevens said Australia is experiencing a smaller downturn than many other nations, indicating a relatively smaller extent of the sort of financial excesses as well as the good fortune of position in relation to China.
The Australian economy avoided a recession by expanding 0.4% sequentially in the first quarter, after shrinking about 0.5% in the prior quarter. Paris based Organization for Economic Co-operation and Development expects around 0.5% fall in Australian GDP during 2009. It emphasized that the Australian government should continue reforms of infrastructure regulations.
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