RBA hold cash rate on improving outlook

The Reserve Bank of Australia has kept the cash rate at 2.5 per cent, saying the global and local economic outlook is improving.

The decision was expected, with all 14 economists surveyed by AAP last week forecasting no change at the December board meeting.

The RBA last cut the cash rate in August, by a quarter of a percentage point, and before that in May, by the same amount.RBA governor Glenn Stevens said there are signs the Australian economy is starting to rebalance away from one that is mainly driven by mining and resources investment.

‘‘Private demand outside the mining sector is expected to increase at a faster pace, though considerable uncertainty surrounds this outlook,’’ he said in a statement accompanying the decision.

‘‘There has been an improvement in indicators of household and business sentiment recently, but it is still unclear how persistent this will be.’’

Mr Stevens again said the Australian dollar is still ‘‘uncomfortably high’’, despite falling recently.

‘‘A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy,’’ he said.

‘‘The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.’’

ANZ head of economics Warren Hogan says the RBA’s upbeat assessment of the non-mining sector made another rate cut unlikely.

‘‘If there’s going to be a move in the next six months, they still think it will be a rate cut but increasingly we’re getting the evidence that the non-mining economy, the non-mining recovery, is coming through, that is in residential building approvals, in some parts of the business sector,’’ he said.

‘‘So they’re comfortable they leave rates where they are. Our view is we’ll get that recovery and therefore they won’t need to cut again.’’

A reduction in the Australian dollar during the next three or four months would also make the RBA content to leave the cash rate on hold ‘‘for the whole of 2014’’, he added.

AAP

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