Finance Finance News Reserve Bank sees Aussie dollar as still too high but rates ok

Reserve Bank sees Aussie dollar as still too high but rates ok

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The Aussie dollar’s recent slump is not enough in the eyes of the Reserve Bank with minutes of the central bank’s December board meeting noting the currency needs to fall further to boost growth and exports.

Reserve Bank chief Glenn Stevens recently said he favoured aUS75c level.

• Aussie dollar hits four and a half year low
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The minutes also revealed that board members are happy hold the current  cash rate at 2.5 per cent for the foreseeable future but note that private sector economists are expecting further falls.

The minutes said board members believed that while the dollar had fallen in recent months, it remained above most estimates of its fundamental value despite weaker commodity prices.

“Members agreed that further exchange rate depreciation was likely to be needed to achieve balanced growth in the economy,” the minutes said.

The Australian dollar has fallen five US cents to a four-and-a-half year low of 82.01 US cents during the past two months.

Meanwhile, the RBA expects local economic growth will stay below trend for the remainder of 2014/15 before gradually picking up pace towards the end of 2016.

“Mining investment was expected to decline sharply and resource exports were expected to grow strongly as the transition from the investment to the production phase of the mining boom continued,” the minutes said.

“Very low interest rates had supported activity in the housing market, which in turn was expected to support consumption.”

The RBA board also expressed concern about subdued employment growth that is likely to weigh on consumer confidence and consumer spending for some time.

The board meeting was held the day before the release of the September quarter economic growth figures, which were the weakest in three-and-a-half years.

The disappointing data shocked the market, resulting in some economists changing their forecasts to include interest rate cuts next year.

On the positive side, the minutes noted that the production and export of liquefied natural gas and iron ore will rise and add to economic growth.

“Resource exports had continued to grow strongly in the September quarter and further expansions in iron ore production were expected to continue supporting resource exports in the near term,” the minutes said.

“Production of liquefied natural gas was also likely to start increasing gradually over the course of the next year.”

However the RBA said reduced government spending will weigh on economic growth for a time.