Australian Monetary Policy Left Unchanged

July 6, 2010

The Reserve Bank of Australia Official Cash Rate (OCR) was retained at 4.5% for a second straight monthly meeting.  Six previous increases of 25 basis points each were implemented in October 2009, November, December, March 2010, April and May.  A statement from Governor Glenn Stevens reiterated that monetary policy settings are considered appropriate, seeing as resulting rates to borrowers are near their ten-year averages.  Future policy changes will be dictated by Australian and global trends in growth and inflation, but Stevens gives no indication about the timing of the next policy adjustment.  The statement is guarded about global prospects, observing slow improvement in the U.S. labor market, pressures on euro area banks, coming fiscal cutbacks in Europe, and some moderation in Chinese growth.  Moreover, financial markets show “some tightness” but not as much as in 2008.

In spite of the above, the statement projects above-trend economic growth in Australia and core inflation in the upper half of its target range during the coming year.  New quarterly CPI figures covering the second quarter are due on July 28.   Meanwhile, mortgage credit has expanded solidly, and leading indications of business investment are encouraging.  The major economic thrust in Australia is coming from a high terms of trade (export/import price ratio). 

AUD/USD has traded in 2010 as low as $0.8068 and as high as $0.9382.  At $0.8482, it is presently in the weaker half of that band and 14% beneath its July 2008 peak of $0.9848.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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