Australia: RBA on hold, gauging effects of previous easing
March 5, 2013
At its 5 March meeting, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 3.00%, in a decision largely anticipated by market analysts.
While the RBA still sees economic activity to be below trend, downside risks have lessened in recent months amid an improved outlook for China and more subdued financial tensions in the Euro area.
At a domestic level, the RBA sees the peak in resources investment approaching. In the meantime, other sectors of economic activity are not seen as picking up the slack from the mining sector. On a positive note, "dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields. Exports of natural resources have been strengthening, though recent bad weather is affecting some shipments at present".
The RBA reiterated that early signs of the impact of the monetary easing operated over the course of 2012 are beginning to show in the real economy, although the full impact will take longer to become apparent. This provided a rational for the decision, as the current stance of the RBA appears to be already appropriately accommodative. Going forward, the subdued inflation outlook provides scope for further monetary easing, if needed, in order to boost economic growth in the non-mining sectors. FocusEconomics Consensus Forecast panellists expect the cash rate to end 2013 at 2.87% and to raise to 3.50% by the end of 2014.
Author: Armando Ciccarelli, Head of Data Solutions