RBA stays pat on cash rate, Aussie still overvalued despite 7% drop in past month

For more than a year the Reserve Bank of Australia has held the official cash rate unchanged at 2.5%. Although, the decision was widely expected, the statement of the central bank sent the Aussie Dollar slightly lower. Glenn Stevens, the RBA Governor, said that growth in Australia is projected to be slightly below trend for the coming quarters. Investment spending in the resources sector is starting to fall significantly, while some other areas of private demand expanded at different rates. Public spending is seen to be subdued. As to the labour market, the central believes that there is a degree of spare capacity and it is likely to be some time before the jobless rate declines consistently. Wage growth has declined substantially and is projected to remain modest in the foreseeable future, keeping inflation consistent with the goal even given weakening of the Australian Dollar. Nevertheless, the 7% drop of the nation's currency in the previous month is not enough to bolster economic transition to domestic drivers of growth. At the time of the previous board meeting it was holding steady above 93 U.S. cents. Since then it has weakened to as low as 86.5 U.S. cents and was trading in a band around 87.5 as the board met. The Aussie's fall was largely spurred by the strengthening U.S. Dollar, but the local currency still remains high by historical standards, especially given further drops in key commodity prices.