“Reserve Bank of Australia Governor Glenn Stevens endorsed the current level of interest ratesand said he’d need to be confident the currency is “seriously overvalued” before considering intervention to weaken it.
“There is a good deal of interest rate stimulus in the pipeline,” he said today in semiannual testimony to a parliamentary panel in Canberra. “It is having an effect.”
The local currency and bond yields rose as Stevens said an overnight cash rate target at 3 percent is appropriate. The RBA chief reiterated that rate cuts are more likely than increases as he aims to rebalance a two-speed economy where mining regions in the north and west thrive while manufacturers, builders and retailers in the south and east struggle.
The so-called Aussie’s almost 60 percent climb in the past four years has hurt exporters. While rate settings aren’t seeking a particular exchange rate response, “they are being set with a recognition of the exchange rate’s effect on the economy,” he said.
“The other tool that may be available is, of course, intervention, and I think the truth is that the power of forces at work here, you need to be pretty confident that it’s seriously overvalued or that the market’s behaving in some quite irrational way before you would launch a large-scale intervention,” Stevens said in response to a lawmaker’s question. “It’s somewhat too high, but we’re not talking 50 percent or something like that.”
