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High $A a factor in cutting rates: RBA


The persistently higher Australian dollar has been a factor in deciding to cut the cash rate, the Reserve Bank of Australia (RBA) says.

RBA governor Glenn Stevens on Friday told a parliamentary committee the exchange rate was still higher than would have been expected, despite the decline in export prices.

"It is not that interest rates are seeking a particular exchange rate response. But, they are being set with a recognition of the exchange rate's effect on the economy," Mr Stevens said in Canberra.

The RBA has reduced the cash rate six times over the past sixteen months, for a total decline of 175 basis points, taking it to three per cent in December.

Mr Stevens said these reductions were having an effect on the economy.

"Housing prices have been rising since last May, having declined for a period prior to that," he said.

"Share prices have also risen quite significantly and, if anything, by a little more than in comparable markets overseas.

"The returns available to savers on safe assets like bonds and bank deposits have fallen by enough to prompt Australian savers to consider shifting their portfolios towards other assets.

"These are channels of monetary policy at work," Mr Stevens said.