No Change in Australian Monetary Policy

May 5, 2009

The Reserve Bank of Australia left its cash rate at 3.0%.  While meeting consensus expectations, investors also took note of a surprisingly upbeat and ambivalent statement.  In such, officials spoke of more stable world financial markets, noting rising equities and declining term spreads.  While reiterating that Australia has been in a recession since the latter part of 2008, the statement also observes rising mortgage credit demand, much lower debt service burdens, recovering Chinese growth, firmer commodity prices and considerable policy stimulus in the pipeline whose impact has yet to be felt. Officials hint that inflation has not abated quite as quickly as they might have hoped.  The statement doesn’t rule out additional rate cuts in the future, calling continuing progress “in restoring balance sheets essential to durable recovery,” but no signal is given that further rate rate relief will be needed or when such might be undertaken.  Left with the impression that rates cuts are neither guaranteed nor imminent, investors bid the Aussie dollar higher and pushed 10-year Australian bond yields above 5.0% for the first time in a half-year.

Previously, officials cut the cash rate by 425 basis points from 7.25% in six steps: 25 bps on September 2, 100 bps on October 7, 75 bps on November 4, 100 bps each on December 2 and February 3 (with no meeting in January), and 25 bps on April 7.

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



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