The Reserve Bank has kept the official interest rate steady at 4.75%, as expected, citing weakness in the local economy due to the January natural disasters and a recent softening in employment growth.
Governor Glenn Stevens said that the floods and cyclones over the summer have reduced output in some key sectors, noting last week’s dramatic fall in GDP.
“The resumption of coal production in flooded mines is taking longer than initially expected, but production levels are now increasing again and there will be a mild boost to demand from the broader rebuilding efforts as they get under way,” Stevens said in a statement.
“Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5%. Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near-term.”
Stevens also noted credit growth remains “modest”, and that credit growth to households has softened, along with housing prices.
“The exchange rate remains, in real effective terms, close to its highest level in several decades. If sustained, this could be expected to exert continued restraint on the traded sector.”
But despite noting the weakness in the local economy, Stevens said that CPI inflation has risen over the past year, and that “substantial rises in utilities prices are still occurring”.
“At today’s meeting, the board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the board will continue to assess carefully the evolving outlook for growth and inflation.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
