Australian Cash Rate To Remain At 3.0%

September 2, 2009

At a meeting on Tuesday, the Reserve Bank of Australia left its benchmark interest rate unchanged at 3.0%, a level it considers “accommodative” yet “appropriate.”  The cash rate was last cut by 25 basis points on April 8th.  The first of six reductions was also by 25 basis points from 7.25% to 7.0%.  In between, the central bank engineered cuts of 100 basis points on October 8, December 3, and February 4 and of 75 bps on November 5th.  A statement from RBA Governor Glenn Stevens reiterated the point that Australia’s economy has been stronger than assumed this year, unemployment is lower than projected and confidence is improving.  Core inflation is still higher than desired, and officials no longer see much risk of persistently sub-target inflation in the future.  However, Australian business credit is falling, and the continuing need for global balance sheet adjustments poses risks.  Real GDP growth accelerated to 0.6% in the second quarter from 0.4% in 1Q and also posted positive on-year growth.  The manufacturing PMI shot up to a 17-month high of 51.7 in August from 44.5 in July, 38.6 in June and 30.1 in April, and building approvals jumped by 7.7% in July.  The Reserve Bank of Australia cannot be the first central bank to start raising rates because the Bank of Israel already took that honor, but it will be one of the first to do so.

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



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