RBA not sure renewed confidence will last

Written By Unknown on Selasa, 05 November 2013 | 17.52

RBA governor Glenn Stevens says it is unclear whether the renewed bout of confidence will last. Source: AAP

THE central bank boss believes it is too early say whether the burst of post-election confidence will last.

Reserve Bank of Australia (RBA) governor Glenn Stevens has also expressed his frustration over a "uncomfortably high" Australian dollar, saying a lower exchange rate is needed if Australia is to achieve more balanced economic growth.

Even so, the RBA left the cash rate at an all-time low of 2.5 per cent for a third straight month at its monthly board meeting on Tuesday, as widely expected by economists.

Mr Stevens expects economic growth to remain below trend in the near term as it adjusts to lower levels of mining investment, but further ahead he tentatively expects non-mining activity to increase at a faster pace.

"(But) considerable uncertainty surrounds this outlook," Mr Stevens warned.

"There has been an improvement in indicators of household and business sentiment recently, but it is still too soon to judge how persistent this will be."

Westpac chief executive Gail Kelly expects it will be a while before confidence translates into firms investing in their own businesses.

A range of business surveys since the September 7 election, that voted in a majority coalition government after three years of minority Labor rule, has seen increased confidence but still benign trading conditions.

"I think businesses are still waiting to see consumers come and spend more and engage more in activities," Mrs Kelly told ABC radio before the rate decision.

"So I think it will be a little while before this increased confidence translates into businesses investing further into their own businesses."

But retailers believe another interest rate cut now would have remedied this, giving consumers a pre-Christmas lift.

Australian Retailers Association executive director Russell Zimmerman was "extremely disappointed" about the steady rate outcome, saying it will do little to encourage consumers to "let go of their purse strings" as they begin Christmas shopping.

However, builders believe the RBA has made the right call for now given a range of indicators giving the industry confidence that a sustained recovery is ahead.

"The full effects of low rates are still flowing through and keeping rates low at this point makes sense," Master Builders Australia chief executive Wilhelm Harnisch said in a statement.

Housing Industry Association chief economist Harley Dale believes the RBA has left the door ajar for a further rate reduction, given Mr Stevens' thoughts on the currency.

"The RBA's inclination to adopt a wait and see approach rather than ruling out future interest rate cuts is entirely appropriate at this juncture in the economic cycle," Dr Dale said.

Mr Stevens said while the Australian dollar is below its level earlier in the year, it is "still uncomfortably high".

"A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy," he said.

However, financial markets at this stage see little chance of another rate cut, and are pricing in an increase towards the end of next year.


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