Reserve Bank of Australia Surprises Market

March 3, 2009

The RBA left its cash rate at 3.25%, 313 basis points higher than the Fed’s target and 175 bps above the ECB target assuming a 50-bp cut by that institution on Thursday. The RBA has already cut its benchmark by 400 bps since September and considers fiscal stimulus in train to be substantial.  Analysts had priced in a 25-50 basis point further rate reduction.

A released statement drew a distinction between other economies and Australia, whose economy shows relative resiliency and “financial system remains strong” and functional.  Economic conditions are projected to be weak but not in a tailspin.  Officials may have been influenced by better-than-anticipated data released today before their decision was announced. Retail sales firmed 0.2% in January and by 6.0% on year following December’s outsized 3.8% monthly advance.  Export volumes eased just 0.8% last quarter versus a 6.8% drop in import volumes, suggesting a 1.5 percentage point GDP boost last quarter from net exports.  The statement called monetary policy appropriate but left open the possibility of a cut at next month’s meeting.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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