Glenn Stevens, Governor of the Reserve Bank of Australia (RBA), commenced his semi-annual announcement yesterday morning.
This announcement contains everything in regards to the AUD, the Australian economy and the International Markets. Many investors were expecting the typical Stevens spiel about how “overvalued” the AUD is in comparison to the majors. However, hardly any dovish words were actually spoken in the initial speech. The only comment of note was that the AUD was not doing enough to balance the Australian economy; this of course referring to the relative strength of the AUD.
Stevens went on to talk about the struggling labor markets. He failed to mention the fact that the Unemployment is at a 14 year high. However, Stevens did say that labor market indicators are suggesting an increase in Productivity for Australia’s economy.
The key point that investors were waiting to hear about was the dreaded inflation rate in Australia. This is the elephant in the room; 3% Australian Inflation. The RBA say they target 2-3% core inflation a year, which is considered a healthy inflation rate. Stevens and the RBA are committed in saying the inflation will not become an issue and that it will remain within targets, us ‘ordinary’ investors are not convinced.
Consumers should be a little worried as the average savings interest rate 3.5%, if you subtract the inflation rate, then the AUD are receiving a disappointing 0.5% yield! The RBA apparently have not even considered raising interest rates in the near future to rid the inflation ‘Elephant’. This is probably because they are worried about a strong AUD and the benefits of a balanced economy rather than the living costs that are affecting the Average Joe Saver.