Australia rules out need for further cuts in interest rates

PUBLISHED : Saturday, 08 March, 2014, 1:40am
UPDATED : Saturday, 08 March, 2014, 1:40am

Australia's central bank governor Glenn Stevens said he is not sure how long a flagged period of interest rate stability will last and does not see the need to further loosen a "very accommodative" policy at the moment.

"I haven't said how long a period because I don't know," Stevens said. "That's a bit of a shift on our part, where we had been saying that there might be scope to go down a bit more if needed. I don't think we do need to at this point in time."

Stevens said last month that a "period of stability in interest rates" was likely after extending a policy pause since the latest reduction in August took borrowing costs to a record-low 2.5 per cent.

Policymakers are seeking to engineer a transition from a resource investment boom to increased residential construction and household consumption.

The Australian dollar has rebounded about 4 per cent since the central bank's decision on February 4 as data showed rising housing prices, surging building approvals and accelerating economic growth even as the jobless rate jumped in January to a 10-year high.

Asked about means to lower the currency, Stevens said yesterday that so-called jawboning "has a limited effect".

"I've said that I thought in the 90s or over a dollar was rather higher than any plausible assessment you could come to, based on our costs and productivity relative to other countries. I haven't changed my view about that," he said. "I don't resile from what I've said before but I have nothing new to say."

Traders are pricing in about a 17 per cent chance of a quarter-percentage-point rate increase in the cash rate in September, according to swaps data.

The Australian dollar dropped about 14 per cent last year, the steepest decline after the yen among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indices. It accelerated its fall in the final quarter of 2013 as policymakers sought to talk down the currency. Stevens said the drop in the currency had contributed to a rise in consumer prices in the fourth quarter.

"Our assessment is that inflation is not quite as low as it might have looked six to 12 months ago, but nor is it accelerating to the extent a literal reading of the latest data might suggest," Stevens said, adding that "inflation … is still consistent with the medium-term target".