The Australian dollar may have fallen to a four-year low but the Reserve Bank remains unsatisfied, meaning interest rates won’t be budging any time soon.
The RBA has left the cash rate at its record low of 2.5 per cent, where it has been since August 2013.
A statement accompanying October’s decision gave no signal of any change on the horizon, with governor Glenn Stevens retaining the familiar phrase that the “most prudent course is likely to be a period of stability in interest rates”.
He was also unimpressed by the Australian dollar’s recent fall, saying the exchange rate remained high by historical standards, given recent declines in commodity prices.
The exchange rate was still “offering less assistance than would normally be expected in achieving balanced growth in the economy”, Mr Stevens said.
The currency has fallen almost eight US cents since the RBA’s last meeting in September, from 94 US cents to 86.43 US cents, its lowest level since July 2010.
The RBA clearly wants it even lower, AMP Capital chief economist Shane Oliver said.
“The fact that they haven’t changed their comment on that just tells you they’re still not happy, they want it lower still,” Dr Oliver said.
“That’s telling you that they still see fair value as well below current levels, which of course is another reason not to raise interest rates at the moment.”
HSBC chief economist Paul Bloxham said the RBA was trying to talk the currency down in order to stimulate the economy.
Low interest rates were already doing what they could, and a further cut could risk overheating the already hot property market, he said.
“The RBA still want a lower currency, despite recent falls, and appeared to use today’s post-meeting statement to encourage the Australian dollar lower,” Mr Bloxham said.
“From their perspective, a lower currency would help speed up the rebalancing of growth.”
Most economists are not expecting a rate hike until around mid-2015, and Mr Bloxham said the unemployment rate would need to be convincingly past its peak for the RBA to consider lifting rates.
Further falls in the Australian dollar could allow that to happen sooner than expected, he said.
“We see the recent decline in the Australian dollar, and possible further falls, as helping to improve local competitiveness, which could assist in supporting an improvement in the labour market earlier than the RBA expects,” Mr Bloxham said.