Reserve Bank of Australia: No Interest Change Expected and None Delivered

March 4, 2013

The Official Cash Rate was left at 3.0%.  It has been at that level since since a 25-basis point cut in December, the sixth ease since November 2011.  A statement released by officials was dovish in tone and similar to the one released in February.  The next move is more likely to be a seventh cut than an increase because inflation is benign, the Aussie dollar is too strong, and growth is subject to downside risks.  The message is summarized in the following passage from today‚Äôs statement.

During 2012, there was a significant easing in monetary policy. Though the full impact of this will still take more time to become apparent, there are signs that the easier conditions are having some of the expected effects. On the other hand, the exchange rate remains higher than might have been expected, given the observed decline in export prices, and the demand for credit is low, as some households and firms continue to seek lower debt levels.

The Board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate. The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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