Aussie weaker after RBA minutes

Minutes from the Reserve Bank of Australia’s March meeting, which left the cash rate on hold at a record low of 2.25 per cent, were released on Tuesday morning. The Australian dollar reacted negatively to the dovish tone of the minutes, slipping almost a quarter of a cent versus the greenback.

The RBA minutes showed the board saw an advantage in waiting for more economic data before cutting rates again. In March, the RBA held the official cash rate at a record low 2.25 per cent, after cutting by 25 basis points in February.

“In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change,” the minutes said.

Members noted that a range of indicators suggested that Australian GDP growth continued at a below-trend pace in the December quarter and over the course of 2014. These indicators had suggested that growth of consumption, dwelling investment and public demand were likely to have increased, but that business investment was likely to have fallen further, largely reflecting further steep declines in mining investment.

In assessing the appropriate stance for monetary policy in Australia, members noted that the outlook for global economic growth had not changed, with Australia’s major trading partners forecast to grow by around the average of recent years in 2015. Lower oil prices were expected to boost growth in major trading partners and reduce inflation temporarily.

More generally, although the decline in many commodity prices over the past year had largely been in response to expansions in global supply, members observed that demand-side factors, including the weakness in Chinese property markets, had also played a role. Although the Australian dollar had depreciated, particularly against the US dollar, it remained above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. Conditions in global financial markets remained very accommodative. Changes to the stance of monetary policy by the major central banks were likely to be important influences on financial markets over the coming year.

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