Home | Breaking News | Reserve Bank keeps cash rate on hold at 2%, pushing up Australian dollar
RBA governor Glenn Stevens kept steady on the issue of broad monetary policy and signalled households were set for continued historically low borrowing costs. Photograph: Mick Tsikas/AAP

Reserve Bank keeps cash rate on hold at 2%, pushing up Australian dollar

WT24 Desk
The Australian dollar rose sharply by more than one US cent after the RBA kept the cash rate on hold at 2% and toned down its rhetoric on the need for the currency to fall, agencies report.Shortly after 4pm, the currency was worth US73.77c, up from US72.64c at the start of the day as the RBA governor Glenn Stevens signalled the end of a long campaign to talk down the local unit’s value.Over the past year Stevens has consistently said that it was “both likely and necessary” for the Australian dollar to depreciate. But on Tuesday he softened the rhetoric in his statement following the RBA’s monthly board meeting on monetary policy, and simply noted that the dollar has “adjusted to significant falls in commodity prices”. “It suggests maybe the Aussie is closer to appropriate levels,” said Su-Lin Ong, a senior economist at RBC Capital Markets.

“It also suggests that the easing bias, which was already pretty modest, is very mild,” she added. “Part of the rationale around having an easing bias and threatening to cut, is to get your currency lower.” The more upbeat outlook from the RBA would have been helped by strong retail sales in June. The figures, which came out shortly before the RBA decision on Tuesday, reported a 0.7% rise in spending boosted by outlay on building materials and electronics.

A 2.2% lift in household goods was helped by renovations and people fitting out newly built homes. “That’s probably the residential construction upturn starting to kick in there,” NAB senior economist David de Garis said. CommSec economist Savanth Sebastian said home improvement spending in the June quarter was its strongest in eight years. However, Stevens kept steady on the issue of broad monetary policy and signalled that households were set for continued historically low borrowing costs.

Noting below-average economic growth, he said: “In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months.” On the continued strong growth in house prices in Sydney and Melbourne, Stevens echoed guidance from previous statements.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities.,” he said.

In a reference to a recent tightening of regulation on the banks by the Australian Prudential Regulatory Authority, Stevens said: “The bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.”

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