Australia: RBA cuts rate amid weaker growth outlook
October 2, 2012
At its 2 October meeting, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to 3.25%, in a decision that surprised market analysts. The decision marks the first rate cut following three consecutive meetings in which the RBA kept the policy rate unchanged. The RBA sees signs of moderation at a global level amid a more subdued growth momentum in China and the developments of the crisis in the Eurozone. Meanwhile, prices for Australia's main export commodities have declined significantly in recent months, which is weighing on the country's growth prospects. The RBA warned that "the peak in resource investment is likely to occur next year" and that for growth to remain sustained in the medium term, strengthening in other demands components should occur. Regarding price developments, inflation remains low, with underlying inflation close to 2.0% and overall consumer price inflation below that value. According to the RBA, the impact of the carbon pricing scheme "is affecting consumer prices in the current quarter, and this will continue over the next couple of quarters." 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, provided that domestic costs "remain contained".
Author: Armando Ciccarelli, Head of Data Solutions