RBA Governor Glenn Stevens and Assistant Governor Christopher Kent testified before the House of Representatives Standing Committee on Economics as part of the RBA’s bi-annual report to Parliament. The RBA chief kept to what was described by Westpac as familiar themes such as global risks and the end of the mining investment boom but he also made mention of employment growth, a stable unemployment rate, the lower exchange rate and positive business surveys. Goldman Sachs said the prepared remarks did nothing “to suggest the RBA is positioning for another rate cut in the near term…”
In the Q& A portion the testimony two points emerged:
- The lower exchange rate is helping the economy re-adjust and “it’s hard to say that the currency is seriously mis-aligned.”
- Import inflation: a 10% drop in the exchange rate typically leads to an additional 0.25%-0.50% inflation each year for two years.
All of which led Westpac to say the cash rate would remain “unchanged for the foreseeable future.”
Perhaps the most interesting thing said by Mr Stevens was regarding the Federal Reserve’s interest rate policy. “There will always be some weak data to say ‘don’t hike rates’, but one day you just have to do it.”