The Reserve Bank has again signalled its frustration that the Australian dollar remains stubbornly high despite recent interest rate cuts.
In the minutes from its February meeting when the cash rate was held steady at 3 per cent, the RBA board noted the past year's 1.75 percentage point reduction had failed to put a dent in the local currency.
While noting that "interest-rate sensitive parts of the economy had shown signs of responding to these lower rates" and that "further effects could be expected over time", the RBA says the dollar is refusing to respond to its monetary policy medicine.
Members note in the minutes that, "the exchange rate remained high despite the terms of trade having declined significantly about 18 months earlier." In public statements over the past year, RBA officials including the governor Glenn Stevens, have expressed concern about the high currency given the impact on Australian exporters.
Since the February meeting, the RBA's quarterly Statement on Monetary Policy downgraded forecasts of economic growth to 2.5 per cent by June this year while warning that unemployment is likely to rise.
In the expectation of higher unemployment and a comfortable inflation outlook, the board said there was, "scope to ease policy further, should that be necessary to support demand." While the board said policy was "already accommodative" and "stimulus was continuing to work its way through the economy", some economists believe the cash rate will be cut again at the RBA's March meeting.
With global conditions improving in recent months, the RBA says the "perceived risk of extremely adverse conditions had declined".
The slowly improving confidence, the RBA says, has seen previously conservative investors moving back into high-yielding assets including the share market.
The RBA noted that global share prices had increased by 13 per cent in 2012 and by 7 per cent since the December board meeting.
On bank funding costs, the RBA noted that while costs had fallen significantly it "would take some time for these lower bond yields to flow through to aggregate funding costs." The RBA minutes back last week's claim from the Commonwealth Bank's chief executive Ian Narev that banks were still not in a position to pass on independent rate cuts to borrowers.
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