Reserve Bank of Australia Drops Easing Bias

August 4, 2009

Australian monetary officials kept the cash rate at 3.0%, where such has been since April 7.  The rate had been cut in six steps from a peak of 7.25% at the start of last September.

A statement from policymakers dropped a prior reference to available scope for further easing if needed but at the same time implied that the cash rate would not begin to rise as soon as many analysts had been anticipating.  Officials called current policy “accommodative” but “appropriate given the economy’s circumstances.”   These include the likelihood of a period ahead of “sluggish output” with slower consumer spending and weak investment, the persistence, albeit diminished, of downside global risks, tighter lending standards, the expectation of firmer Australian growth in 2010, and moderating domestic inflation.

While the basic message continues that Australia has avoided the brunt of the world recession, it is being tempered by a warning that it remains premature to withdraw fiscal and monetary support. If all goes according to plan, the Reserve Bank should be one of the first central banks to raise rates, but that’s not happening as soon as some thought.

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



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