Australian Central Bank Keeps Rates at Historic Lows

Camila Martinez

Australia’s central banking body has decided to keep interest rates at the same low levels as before.

The Reserve Bank of Australia, also known as the RBA, announced that it would hold the official cash rate, or OCR, at 1.5%, the same position it has been in for the last twenty-three policy committee meetings.

The RBA said in its statement that the move was designed to give assistance to the Australian economy.

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” it said.

The inflation issue was a key focus for the committee, and although there are predictions that prices will rise in Australia in the coming years, the RBA claims that the overall figures for this year will actually dip.

“Inflation is around 2 per cent. The central forecast is for inflation to be higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower, at 1¾ per cent.”

Reference was also made to the performance of the Australian dollar.

The currency has suffered extensively in recent months. The impact of US tariffs on China, a key trading partner for Australia, has led to the dollar facing problems.

While domestic political issues do not usually cause the Australian dollar to suffer, the most recent political upheaval, a Liberal Party leadership contest, did have a significant impact on the currency.

“The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, but it has depreciated against the US dollar along with most other currencies,” the statement said.

The AUD/USD pair managed to surge somewhat following the news, but it later dropped and hovered at around $0.7165.

Elsewhere in the global forex markets, the Bank of Japan has announced that it will buy up a range of government bonds. The Japanese central bank told the government it would snap up 3 to 5 year maturity bonds totalling JPY 350 billion in value.

Looking ahead to the rest of the week, forex traders will soon see an uptick in activity as the markets begin to recover from the temporary respite of the Labour Day holidays in North America.

Tomorrow, data on mortgage applications will be released in the US alongside information about the country’s July trade balance.

Over the border in Canada, meanwhile, information on July imports, exports and international merchandise trade will also be released.

Import and export data is out for Australia on Thursday, too, while Friday sees a series of major German data releases focusing on trade balances, current account and industrial production.

A range of British house price data releases for August, meanwhile, will give some indication as to the effect that the ongoing Brexit negotiations may be having on the British housing market.

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Camila Martinez
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