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(RBA) has announced it will hold the official cash rate at 2% in April

Written by: The Reserve Bank of Australia

The Reserve Bank of Australia (RBA) has announced it will hold the official cash rate at 2% in April.

This is the tenth consecutive month that the official cash rate has been left on hold, despite a persistently strong Australian Dollar (AUD) threatening a cash rate cut.

The AUD reached an eight month high of USD $0.77 early this week. The strength of the AUD is partly due to a global currency battle, where many central banks around the world are simultaneously trying to lower the value of their currencies relative to others, in order to attract more exports. This mitigates the ability of the RBA to devalue the currency in Australia through further cuts to the cash rate. Even though Australia’s cash rate is at a historically low level, it remains high relative to other countries such as in Japan, where rates are in negative territory.

Another boost to the AUD came from rallies in commodities over March. While most commodities are still well below the high levels in 2014, the last month saw increases in the index of natural gas (21.1%), iron ore (3.1%), coal (1.2%) and crude oil (1.1%).

Increases in price for Australia’s export commodities may help boost economic activity in the short term, as well as increase demand for the AUD, thus aiding its buoyancy.

Growth in resource revenues may have offset a need to try and reduce the currency value for April, which in turn may have contributed to the hold decision.

Further movements in the AUD, which will impact future cash rate decisions, will be contingent upon cash rate movements in the United States as the USD is a major currency competitor.

Other positive indicators coming from the Australian economy include an increase in the number of job vacancies, which trended up sharply by 3.1% in the February 2016 quarter. However, the robust nature of Australia’s economy in the face of increased job vacancies also depends on the skill level in the workforce and whether these vacancies can be fulfilled.

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