Members of the monetary policy board of the Reserve Bank of Australia felt that the country’s economy was still sluggish enough to warrant continued stimulus, minutes from the board’s September meeting revealed on Tuesday.
Lower resource exports and lagging commodity prices were weighing on the Australian economy, the board said, although the weakening Australian dollar is expected to help spur growth in the coming months.
“The depreciation of the Australian dollar in response to the significant declines in key commodity prices was also expected to support growth, particularly through a larger contribution from net service exports,” the minutes said.
The members added that inflation is likely to remain in the target range for approximately the next two years, so they were in no hurry to hike rates.
At the meeting, the RBA left its benchmark lending rate unchanged at the record low 2.00 percent after lowering the rate by 25 basis points each in February and May.
The bank said the Australian economy is likely to be operating with a degree of spare capacity with domestic inflationary pressures contained.
The RBA observed that the global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late.
“The weakening in Chinese economic activity combined with developments in Chinese financial markets had led to sharp declines in global equity prices,” the minutes said.
Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate, the bank reiterated.
The bank also noted that the Australian dollar is adjusting to the significant declines in key commodity prices.
“The board judged that it was appropriate to leave the cash rate unchanged. Information about economic and financial conditions would continue to inform the board’s assessment of the outlook and whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target,” the minutes said.
Also on Tuesday, the Australian Bureau of Statistics said that the total number of new motor vehicle sales in Australia was down a seasonally adjusted 1.6 percent on month in August, coming in at 94,332.
That follows the 1.3 percent monthly decline in July.
By region, sales in the Northern Territory saw the largest decline (3.3 percent), followed by South Australia (1.8 percent) and Western Australia (0.4 percent).
Over the same period, Tasmania had the largest increase in sales (0.8 percent).
On a yearly basis, sales gained 2.1 percent – slowing from the 3.7 percent spike in the previous month.
The material has been provided by InstaForex Company – www.instaforex.com