"Low interest rates were working to support demand, but members agreed that it was difficult to judge the extent to which this would offset the anticipated substantial decline in mining investment and the effect of planned fiscal consolidation"
- RBA minutes
The Australian Dollar traded slightly below 94 U.S. cents after the Reserve Bank of Australia announced its monetary policy decision. The central bank will remain on a course of ultra-accommodative policy stance for some time to ensure a sustainable growth in the post-mining boom economy. The RBA reiterated its pledge to keep interest rates stable as the government cuts spending. However, Governor Glenn Stevens, who is seeking to spur domestic demand to offset slowdown in the mining sector, has seen his attempts undermined by an elevated local currency. The Governor reiterated last that Australia's Dollar is overvalued by more than just a few cents. However, Stevens believes that once the Fed started raising interest rates the Aussie Dollar would be hit.
The main concern for policy makers at this stage is where growth will come from in the coming years if investment in the mining sector continues to fade at the current pace, as expected. Moreover, it is expected that the labour market is set to weaken further, as last week the official data showed the unemployment rate edged higher to 6.0%, returning to the highest level in five years. The officials said that investment in non-mining sectors was rising gradually but that household consumption has eased, concluding that gross domestic product growth is projected to be slightly below the trend in the next year or so, with exports contributing much less to growth than they have recently.
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