-Adam Boyton Deutsche Bank chief economist
With no surprises to markets the Reserve Bank of Australia maintained the selected course and kept its benchmark cash rate at a record-low, as recently-unveiled budget adds to a mining investment slowdown and weighs on confidence, becoming a brake on growth. The official cash rate was left unchanged at 2.5% for a 10th consecutive month, as Glenn Stevens reiterated his pledge to keep rates on hold for a period of time. The Governor confirmed that investment in key mining sector will continue to decline, however, there were signs that investment inflow in other, non-resources industries, has picked up. One of the main worrying signs for the resource-rich economy is that prices of iron ore, the nation's biggest export, capped its sixth monthly drop in May, posting the longest drop on record amid rising supplies from Brazil and Australia. Additionally, the central bank cited persistent weakness in the labour market. Amid other concerns, analysts from Deutsche Bank mentioned slow pace of growth in retail sales, while housing finance and building approvals have showed disappointing figures as well.
The central bank has once again warned that the exchange rate has moved back to the "uncomfortably high" area. According to Stevens Aussie's exchange rate is still high by historical standards, especially given the further decline in commodity prices.
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