RBA chief upbeat on Australian economy

PUBLISHED : Thursday, 19 December, 2013, 1:38am
UPDATED : Thursday, 19 December, 2013, 1:38am

Australia's central bank chief hinted yesterday that there was no pressing need to cut interest rates further in the near term, saying low borrowing costs were working to support the economy.

Reserve Bank of Australia (RBA) governor Glenn Stevens also said that the recent decline in the local dollar was welcomed and that further weakness would help achieve a more balanced economic recovery.

"The board has maintained an open mind about whether we may need to lower interest rates further. At this point, however, there are few serious claims that the cost of borrowing per se is holding back growth," Stevens told lawmakers in his parliamentary testimony in Canberra.

"On the contrary, monetary policy is supporting higher spending by altering incentives as between spending and saving, and working to create an environment in asset and credit markets that eases the restraints on some sorts of activity."

Since late 2011, the RBA has slashed 225 basis points off its cash rate, taking it to a record low 2.5 per cent in August.

"The key message, as we see it, from the governor's prepared text is that as far as policy easing is concerned the RBA has done its bit," said Deutsche Bank chief economist Adam Boyton.

"To the extent that the economy may require additional support, that increasingly needs to come from other policy levers."

Indeed, the central bank has switched to a wait-and-see mode, repeatedly saying it wanted a weaker local dollar to spur a more broad-based recovery in the economy instead of lowering rates further.

In a rare interview on Friday, Stevens said he thought 85 US cents was a more reasonable level than 95 US cents. Following his comments, the Aussie dollar fell below 90 US cents.