Reserve Bank of Australia

September 6, 2016

Glen Steven’s decade-long stewardship as Governor of the Reserve Bank of Australia ends this month, and his last interest rate policy meeting ended with an as-expected decision to leave the Official Cash Rate unchanged at 1.5%. The rate had been sliced by 25 basis points each in February and May of 2015 and May and August of this year. Today’s statement adopts a wait-and-see, trust-but-verify attitude: ”¬†Having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” It’s been decades since Australia experienced a recession, yet positive growth is expected to continue. The sharp drop in Australian commodity prices has ended, and housing price inflation is now only moderate. Inflation is projected to remain low for “some time” in light of “very subdued growth in labor costs and very low cost pressures elsewhere in the world.”

The September statement from Stevens does not call the Australian dollar overvalued but warns that the ongoing process of “necessary economic adjustments” could be complicated if the currency were to appreciate.

The incoming RBA governor is Philip Lowe, who holds a Ph.D. in economics at MIT and was mentored there in part by the current Fed Vice Chairman, Stanley Fisher.

Copyright 2016, Larry Greenberg.  All rights reserved. No secondary distribution without express permission.

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