Australian Central Bank Stays in Wait-and-See Mode
June 3, 2008
One month ago, RBA officials said credit demand “has weakened.” A released statement after today’s meeting escalated that view to “credit expansion to both households and businesses has weakened significantly.” Outside of that modification, the two statements read essentially the same. Opposing forces — tighter financial conditions but a big future stimulus from a strengthening terms of trade — will vie for dominance over future economic growth. The baseline forecast of RBA officials is that growth continues to slow and eventually pulls down inflation, which is currently running far above its 3% target ceiling. The forecast leaves no room for a rate cut anytime soon and retains a possibility of a rate hike if growth fails to slow as much as assumed or if expected inflation takes off. Neither of those risks is a near-term possibility, so it will be wait-and-see at least into 4Q08 and possibly beyond. The 7.25% cash rate is at a 12-year high and 100 basis points above its year-ago level.
Tags: Aussie Dollar/Kiwi
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