RBA Plans to Keep Stimulus Options Open

Reserve Bank of Australia announced on Tuesday it will keep stimulus expansion options open as it predicted weak inflation and slow economy in the second quarter of the year.

Even though part of the second-quarter data was “consistent with a moderation of GDP growth following the stronger than expected outcome” three months earlier, according to the RBA minutes of July 5.

“Inflation was still expected to remain quite low for some time,” the RBA reiterated after leaving interest rates at a record-low 1.75 percent. “Forward-looking indicators of employment had been slightly weaker over recent months following gains over the preceding year, but were still consistent with employment growth in the months ahead.”

The central bank is struggling with the possibility of a mixed economy. So far, growth has been impressive and so is the labour market, but at the same time wages and inflation are at record lows, one of the reasons the central bank cut rates by 25 basis points in May.

Another issue RBA will have to contend with is the exchange rate that key service industries like tourism and education are highly sensitive to — given that the Aussie dollar has risen 4.5 percent since June and hurt their competitiveness.

“An appreciating exchange rate could complicate the necessary economic adjustments,” policy makers said. The central bank also “measures of inflation expectations — from consumers, market economists, union officials and financial markets — had remained below average.”

The Aussie dollar dropped from 75.67 cents to 75.08 cents against the greenback.