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RBA keeps rate accommodative to support borrowing and spending

RBA keeps rate accommodative to support borrowing and spending

(3 June 2015 – Australia) The Reserve Bank of Australia (RBA) left the cash rate unchanged at 2.0 percent at its Monetary Policy meeting on 2 June, citing the moderate growth in the economy and an improvement in household spending.

The RBA said there had been a large rise in dwelling construction and exports were rising.

“But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year,” the RBA said.

“Public spending is also scheduled to be subdued.

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet.

“With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.”

In these circumstances the RBA said monetary policy needed to be accommodative, saying the low interest rates were acting to support borrowing and spending.

The central bank said in its statement that credit is recording moderate growth overall, with stronger lending to businesses and growth in lending to the housing market broadly steady over recent months.

Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities.

The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.

Having eased monetary policy last month, the Board judged that leaving the cash rate unchanged was appropriate at this meeting.

Information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.

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