Investing.com - Australia's currency has not fallen as much as expected in response to cuts in interest rates that have taken the cash rate to a record low 1.5%, Reserve Bank of Australia assistant governor Christopher Kent said Tuesday.
"While it is hard to be precise, our modelling suggests that the exchange rate (the real trade weighted index, or real TWI) has not depreciated by quite as much as might have been expected in response to the actual decline in the terms of trade (and the reductions in domestic interest rates)," Kent said in a speech at a Bloomberg breakfast event.
Kent said the pattern of adjustment of the Australian economy to the decline in the terms of trade and mining investment is generally consistent with RBA expectations.
"However, the decline in the terms of trade was larger than expected. In response, there has been significant adjustment in a range of market 'prices,' including wages and the nominal exchange rate, although the exchange rate has depreciated a little less than otherwise given global developments," he said.
"Monetary policy has also responded, with interest rates reduced to low levels," he added.
Kent said inflation has been a bit weaker than expected more recently while growth in the non-mining economy has picked up and been a bit better than anticipated. Of late, real GDP has been a bit stronger and the unemployment rate a little lower than earlier forecast, he said.