Reserve Bank of Australia keeps key rate at 2.5%, signs of growth won't stir inflation

Tuesday 3rd June 2014

The Reserve Bank of Australia has kept its cash rate unchanged at 2.5 percent, as expected, and said while it is detecting signs of growth in the economy, including stronger resource exports, it won't be enough to stoke inflation.

Governor Glenn Stevens released a statement on the bank’s monetary policy decision that is broadly unchanged from its position at the start of May, reiterating that inflation is expected to remain consistent with its 2 percent to 3 percent target over the next two years.

"The economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year," Stevens said in a statement. "This has resulted partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters."

"Moderate growth has been occurring in consumer demand and a strong expansion in housing construction is now under way," he said. "At the same time, resources sector investment spending is set to decline significantly."

The statement comes after government figures showed retail sales rose 0.2 percent, seasonally adjusted, in April, against expectations of 0.3 percent growth, while private sector figures yesterday showed dwelling prices fell by the most in almost 5 1/2 years in May.

Stevens' statement is broadly similar to what he said last month, repeating that growth in wages has "declined noticeably" and that it would be some time before unemployment declines consistently.

"Credit growth has picked up a little. Dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently," he said.

The Australian dollar recently traded at 92.63 US cents, up from 92.51 cents immediately before the statement. The kiwi dropped to 91.26 Australian cents from 91.42 cents just before the RBA statement.

BusinessDesk.co.nz

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