No Change in Australian Official Cash Rate

March 5, 2012

The Monetary Policy Board retained a 4.25% Official Cash Rate (OCR) and released a statement that 1) expresses less concern about the world economy but 2) maintains an option to cut the rate in the future "should demand conditions weaken materially."  It can do this because of a benign inflation outlook, projecting in target CPI inflation over the forecast horizon after a further drop in the "next quarter or two."  GDP is expanding close to trend, the terms of trade has crested and begun to settle back, credit is growing modestly, and the housing market remains soft.  While most analysts had correctly expected officials to maintain the status quo this month, yesterday’s service-sector purchasing managers index underscored the the Australia’s downside growth risks.  The index was below 50 for the fourth time in five months, dropping to 46.7 in February from 51.9 in January.

After being cut from 7.25% to 3.0% is six moves from September 2009 to April 2008, the OCR underwent seven 25-basis point increases starting in October 2009 and culminating in November 2010.  A 4.75% level was maintained for twelve months until cuts of 25 bps implemented last November and December.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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