Australia: RBA unexpectedly leaves rates unchanged
November 6, 2012
At its 6 November meeting, the Reserve Bank of Australia (RBA) kept the cash rate unchanged at 3.25%, in a decision that surprised market analysts, which were expecting the RBA to cut interest rates by 25 percentage points amid a deteriorating growth outlook. The RBA maintains that the balance of risks at a global level remains tilted to the downside, particularly amid uncertainty regarding the developments in Europe. At a domestic level, most indicators "suggest that growth has been running close to trend over the past year". The peak in investment resources, which "is likely to occur next year, at a lower level than expected six months ago", clouds the outlook for economic activity going forward. Regarding price developments, inflation has been higher than expected in the third quarter, due to the impact of the carbon pricing scheme. That said, the Bank maintains the view that inflation will be in line with its 2.0% - 3.0% target range over both this year and next. According to monetary authorities, "further effects of actions already taken to ease monetary policy can be expected over time". This provided a rationale for the current decision to take a wait-and-see approach, as higher-than-expected inflation in the third quarter left the RBA with smaller room to cut interest rates and support growth.
Author: Armando Ciccarelli, Head of Data Solutions