Tuesday, August 19, 2014

Reserve Bank warns of "significant uncertainty" about economic outlook

The Reserve Bank says the outlook for Australia's economy appears uncertain and that the high exchange rate remains a key problem.

Underscoring the challenge of managing an economy in transition, the RBA has pointed to "a significant degree of uncertainty about the the outlook, given the number of forces working in different directions".

And in the minutes from its August meeting, the RBA says that despite a record low cash rate the exchange rate "remained high by historical standards".

The RBA also says the high dollar is "notable" given the decline in the prices of some key commodities.

Appearing to express some frustration in the face of a record low cash rate, the Board says the high dollar is "offering less assistance than it might in achieving balanced growth in the economy".

The RBA has cut the cash rate by 2.25 percentage points since November 2011 with the aim, in part, of lowering the currency.

In leaving the cash rate on hold at 2.5 percent at the August 5 meeting, the Board repeated that monetary policy "was appropriately configured" and that "the most prudent course was likely to be a period of stability".

The August meeting was held two days before the release of official employment figures for July where the jobless rate spiked unexpectedly to 6.4 per cent.

In its Quarterly Statement on Monetary Policy released after the surprise unemployment increase, the RBA signalled the result could have been a blip caused by a revised definition of employment.

However, the RBA's August board meeting was referred to "a notable degree degree of spare capacity" in the workforce with a relatively high unemployment rate and the participation rate remaining steady.

Echoing the quarterly statement, the Board was told that despite recent higher reading, inflation was remain within the 2 to 3 per cent target band over the next two years.

The minutes repeat that economic growth will be below average over 2014/15 before getting back above average pace in 2016.

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