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MNI BRIEF: Weak Aussie To Have 'Modest' Inflation Impact - RBA

MNI (Perth)

The Reserve Bank of Australia forecasts only a "modest" uplift to inflation over the next few years from weakness in the Australian dollar, said Assistant Governor (Financial Markets) Chris Kent in a speech on Monday.

While acknowledging the 14% decline in the aussie against the US dollar this year, Kent said the currency had fallen only 2% in trade weighted index terms as it had been supported by high prices for key commodity exports, which include iron ore, coal, and liquefied natural gas.

He said the Australian dollar had "moved broadly in line with its fundamental determinants", noting the currency's decline accorded with differentials in interest rates between Australia and other economies. Kent said much of the aussie's decline reflected the rapid and prospective rises in U.S. rates. The impact of the 2% decline in the TWI on inflation was estimated to be "relatively modest." Kent said a rough rule of thumb suggested the Consumer Price Index would be higher by only around 0.2% "over the course of a few years."

In late Asia-Pacific trade Monday, the Australian dollar was trading at 0.6335, down 0.45 cents on the day.

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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