Australia: Going with the flow – ING

By FXStreet James Knightley, Senior Economist at ING, notes that the Reserve Bank of Australia left policy unchanged, but suggested they continue to have room to act should inflation soften, citing currency strength as a key issue.

Key Quotes

“The Reserve Bank of Australia last cut its policy rate in May 2015 and yesterday again, cash rate was kept at 2%. On the positive side the accompanying statement highlighted the growing global economy, the recent modest strengthening in commodity prices and the improvement in sentiment in financial markets.

At the same time the Australian economy “is continuing to rebalance”, bank lending is picking up and the labour market is in reasonable shape. Indeed, the economy is expected to strengthen further this year with the consensus forecast amongst economists being for GDP to expand 2.6% this year and 2.9% in 2017 (we are even more optimistic, looking for a 3%+ reading).

However, the RBA also suggested that there is little inflation in the system with labour costs remaining “quite subdued” and with the global inflation backdrop looking benign then domestic CPI readings are likely to “remain low over the next year or two”. This means that there is no pressure for the central bank …read more

Source:: FX Street