Australia: RBA on hold but hints at rate cut
October 4, 2011
As widely expected by market analysts, the Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.75% at its 4 October meeting. The decision marks the 10th consecutive meeting that monetary authorities have maintained rates. According to monetary authorities, the outlook at a global level remains subdued amid uncertainty regarding the resolution of the debt crisis in the Eurozone. However, prices for key export commodities remain strong, despite the moderation observed in recent months, and investment in the resources sector is picking up. On the other hand, a strong exchange rate and prudent household behaviour are having a noticeable dampening effect on economic activity. Consequently, the RBA believes that the pace of near-term growth is unlikely to be as strong as earlier expected. With regard to inflation, signs of underlying inflationary pressure showed an increase that was less sharp than initially indicated. Accordingly, the RBA believes that inflation is likely to be consistent with its 2-3% target over next year and the following. Finally, monetary authorities noted that an improved inflation outlook could provide the necessary scope for monetary policy to support demand if needed. While market analysts are uncertain regarding future RBA moves, many believe that this might signal a possible rate cut going forward, if global conditions were to deteriorate further.
Author: Armando Ciccarelli, Head of Data Solutions