Australia’s central bank said the currency’s decline and past interest-rate cuts meant its policy setting was appropriate even as it maintained room for future reductions, according to minutes of its July 2 meeting.
"Given the exchange rate adjustment that was occurring, and with the substantial degree of monetary stimulus already in place, members assessed the current stance of policy to be appropriate," the Reserve Bank of Australia said today in Sydney in minutes of the meeting at which it held the cash rate steady. The RBA said the inflation outlook was "slightly higher" due to the Aussie’s recent drop.
The currency climbed as traders pared bets on another rate cut next month after the commentary on inflation. Governor Glenn Stevens and his board reduced borrowing costs by two percentage points to a record-low 2.75% since late 2011, aiming to re-balance growth as a mining-investment boom peaks.
The inflation comment doesn’t "rule out an August rate cut per se, but it does dilute the urgency for a near-term rate cut, at the margin," said one expert.
A 12% decline in the Australian dollar last quarter eased pressure on the governor to cut rates again. The currency rose to 91.60 U.S. cents early afternoon in Sydney from 91.11 cents before the minutes were released.
Traders were pricing in a 54% chance the RBA will lower borrowing costs by a quarter percentage point to a fresh record 2.5% next month, according to interest-rate swaps data compiled by Bloomberg. That’s down from a 65% chance yesterday.
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