Australia Monetary Policy


RBA leaves rate unchanged but hints at rate cut

At its meeting on 3 April, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.25%, in a move widely expected by market analysts. The result marks the third consecutive meeting in which the RBA has kept rates on hold, following consecutive cuts in November and December. According to the RBA, a "deep downturn" is not occurring, although the world economy will grow "at a below-trend pace" this year. However, downside risks to the outlook remain as the debt crisis in Europe provides "a potential source of adverse shocks". In Australia, recent growth figures suggest that the economy grew "somewhat below trend", although with differences among sectors of economic activity. The Bank expects inflation to be in line with its 2.0% - 3.0% target range over both this year and next. Monetary authorities judged the current monetary policy setting appropriate. However, the RBA added that "were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy". In particular, while considering "the pace of output growth to be somewhat lower than earlier estimated", monetary authorities deemed prudent to review the inflation outlook before embarking in further monetary easing. [NOTE: this is because inflation Q1 2012 is published on 24 April] According to analysts, the phrasing of the statement provides a hint to a possible relaxation of the RBA monetary policy stance going forward.

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