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RBA says monetary policy "very accomodative" but to stay steady

Published 11/06/2014, 08:57 PM
Updated 11/06/2014, 08:59 PM
RBA says policy "very accomodative"

Investing.com - The Reserve Bank of Australia Friday said current monetary policy is "very accommodative" because lower interest rates are supported by a recent decline in the currency.

Still, based on current indications, the RBA repeated its guidance that the "most prudent course is likely to be a period of stability in interest rates."

"The very accommodative monetary-policy settings will continue to provide support to demand and help growth to strengthen in time," the RBA said in its quarterly Statement of Monetary Policy published Friday.

The Australian dollar may decline further owing to "the prospect of a rise in U.S. interest rates next year" - even though this was widely anticipated, it said. Such a depreciation will add "somewhat to growth" but will also lead to upward pressure on inflation though there is a possibility the net effect will be smaller if the fall in the exchange rate is also accompanied by a larger-than-expected decline in commodity prices, the RBA said.

On the other hand there is a possibility the Australian dollar "stays at a higher level than real economic fundamentals would imply" because "the recent announcements in Japan on monetary policy and pension-fund asset allocation increases the probability of capital flows seeking attractive yields in Australia," the RBA said.

The forecast for growth was unchanged from August while the inflation forecast was revised up reflecting recent further depreciation of the exchange. The overall outlook on inflation is, however, unchanged and "consistent with the inflation target over the forecast period."

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