The higher Australian dollar is likely to “subdue price pressure” in the domestic economy and weigh on the outlook for output and employment, warns RBA governor Philip Lowe.
In his monetary statement accompanying the RBA's decision to keep the cash rate on hold at 1.5 per cent yesterday, Mr Lowe devoted a paragraph to the recent appreciation of the Australian dollar.
"The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy," Mr Lowe said.
"It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."
AMP Capital chief economist Shane Oliver said the governor's comments about the Australian dollar mark a "significant change" in its post-meeting statements.
"This marks a further pick-up in the RBA’s attempts to jawbone the Australian dollar lower or at least stop its ascent that got underway with deputy governor Guy Debelle saying just over a week ago that a lower exchange rate '…would be helpful'," Mr Oliver said.
"Its likely to be at least repeated in the Statement on Monetary Policy to be released Friday and could become even more strident going forward if the Australian dollar continues to rise.
"Our view remains that the RBA will be on hold for the next year at least, with risks around the consumer, a housing slowdown, inflation and the Australian dollar preventing hikes but a fading in the drag from the mining investment slump and solid employment growth heading off cuts.
"A rate hike is unlikely until late next year. However, if the Australian dollar refuses to play ball and continues to rise the timing of a move to higher rates could be pushed into 2019 and rate cuts could be back on the table."
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