RBA confident about economy

The Reserve Bank of Australia says the local economy is gaining strength thanks to the falling Australian dollar and the impact of previous interest rate cuts.

In the minutes of its February 4 board meeting, the RBA made it abundantly clear that it won't be cutting the cash rate in the coming months.

"If the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates," the RBA said in the minutes released on Tuesday.

In just over two years the RBA has made a series of reductions in the cash rate taking it to a record low of 2.5 per cent from 4.75 per cent in November 2011.

The minutes noted that the Australian dollar has fallen three per cent on average against other currencies in two months and is 15 per cent below its most recent peak in 2013.

"If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth in the economy," the RBA said.

"The board had judged that given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged, while assessing the continuing impact of that stimulus."

Official figures released last week showed that the unemployment rate rose to six per cent in January, its highest for 10 years.

However the RBA appears to be unconcerned about any weakness in employment growth.

"Members recognised that conditions in the labour market tended to lag economic growth, and that the labour market had remained weak following a period of below-trend growth in activity," the RBA said.

"Forward looking indicators of labour demand, such as vacancies and job advertisements, had shown signs of stabilising in recent months but remained at low levels and were consistent with only moderate growth of employment in the months ahead.

"While weak conditions in the labour market had weighed on consumption growth, the increase in housing and equity prices over the past year raised the possibility that consumption growth could outpace that of income in the period ahead."

The RBA said economic growth will strengthen in 2014 but stay at a below trend pace and then increase to an above trend pace by mid 2016.

RBA last cut the cash rate by a quarter of a percentage point to a new record low of 2.5 per cent at its August 6 board meeting.

Ref source: http://au.finance.yahoo.com/news/rba-confident-economy-003420110.html