By fxtimes.com
The Reserve Bank of Australia made no change to its benchmark lending rate on Tuesday, although another reduction is expected in the coming months to shore up the struggling economy.
The RBA held its target for the overnight rate at 2.25 percent, defying forecasts calling for another rate cut to 2 percent. Before January, the RBA had kept interest rates locked at 2.5 percent for 18 consecutive months. 2014 was the first calendar year in a decade the RBA made no changed to monetary policy.
The Bank’s failure to ease monetary policy this month defied months-long speculation policymakers would lower its benchmark rate to 2 percent sooner rather than later. Back in January Australia and New Zealand Banking Group (ANZ), among others, forecast the benchmark rate to fall to 2 percent within the first half of 2015.
However, the RBA left the doors open to another rate cut in the short-term, depending on the performance of the local economy.
“Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will further assess the case for such action at forthcoming meetings,” read the RBA’s official rate statement.
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The Bank is lowering interest rates to counteract deflationary pressures and kick start the domestic economy, which is reeling from a broad slowdown in mining investment, plunging commodity prices and a volatile labour market. These combined forces have given Bank officials plenty of scope to keep monetary policy highly accommodative.
In addition to accommodative policies, the RBA is relying on a weaker currency to rev up the economy. The Bank has “talking down” the Australian dollar in its monetary policy statements, claiming the Aussie was overvalued by historical standard.
The Australian dollar began to rise shortly after the rate announcement, surging past 78 cents US. The AUDUSD exchange rate jumped three-quarters of a percentage point to 0.7817 cents. The AUDUSD exchange rate has declined a staggering 16.8 percent over the past six months.
In economic data, Australia’s building permits unexpectedly surged in January, while the country’s account deficit shrank more than forecast, the Australian Bureau of Statistics reported on Monday.
Building permits rose 7.9 percent from December and 9.1 percent annually, as interest in residential construction continued to be fanned by record-low interest rates.
Meanwhile, Australia’s current account deficit declined 21 percent to a seasonally adjusted $9.588 billion in the fourth quarter of 2014. A median estimate of economists forecast the deficit to shrink to only $11 billion.
Article By fxtimes.com