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Australia Rejoins Global Disinflation Fight With Record Low Rate

Posted by Chris Advincula on Aug 2, 2016 6:27:27 AM

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(Aug 2 Bloomberg) >RBA cuts benchmark to 1.5 percent as inflation remains subdued  >Aussie currency, rates no longer envy of developed world

How the mighty have fallen.

Australia's record low interest-rate following Tuesday's cut underscores the demise of its economic exceptionalism: swept up in a wave of global disinflation, policy makers had little choice but to step in line with international peers as a strengthening currency threatens to push prices lower still.

It's a far cry from five years ago when the benchmark rate was a developed-world high 4.75 percent and the local dollar was worth more than the greenback as a mining investment bonanza went into overdrive.

Reserve Bank of Australia Governor Glenn Stevens, one policy meeting away from retirement, will leave his deputy and successor, Philip Lowe, with an inheritance that's confounding counterparts worldwide; very low inflation and limited policy ammunition to combat it. The best result for Australia would be a depreciation in the exchange rate, but with interest rates low and even negative across the developed world, yield-hungry investors are proving tough to discourage.

"The RBA's decision seemed to reflect a particular fear that lack of policy action would have placed further undesired upward pressure on the Australian dollar," said David Basanese, chief economist at BeaShares Pty. in Sydney. "The post-Brexit easing in monetary conditions---including delayed U.S. rate hikes---has helped force the RBA's hand."

Click on the link below to see the full story from Bloomberg: (by Michael Heath)

Australia Rejoins Global Disinflation Fight With Record Low Rate

 

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Topics: AUDUSD, Reserve Bank of Australia, Forex Market, RBA Monetary Policy

 

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