Pause in Australian Monetary Policy Continued

March 1, 2011

The Australian Official Cash Rate was left at 4.75% as expected.  Australia escaped the Great Recession, thanks to heads-up monetary and fiscal stimulus.  The cash rate was slashed to 3.0% from a prior peak of 7.25%, but the Reserve Bank of Australia was among the first central banks to start reversing course, undertaking an initial rate increase sixteen months ago in October 2009.  Five more 25-basis points were implemented by May 2010 and a final step was made in November 2010. 

A statement released today reiterates that the current 4.75% benchmark rate connotes a “mildly restrictive stance a monetary policy” which moreover is “appropriate in view of the general macroeconomic outlook.”  The economy is being supported by the strongest terms of trade (export-import price ratio) since the 1950s, but consumer spending and borrowing have been cautious.  Instances of skilled labor shortages remained scattered, while inflation is both well below the 2008 peak and consistent, in the opinion of officials, with a medium-term target of 2-3%.  For now, officials will want to assess the effect of the heavy floods in the northeast part of the country.  The statement gives no sense of any urgency to undertake an eighth rate advance or to increase the size of incremental tightenings.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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