Australian Official Cash Rate Left at 4.75% as Expected

May 3, 2011

The Reserve Bank of Australia was among the earliest central banks to begin raising interest rates, which made sense since the Australian economy managed to avoid a downturn during the Great World Recession.  Rate hikes of 25 basis points each in October, November and December 2009 were followed by similarly-sized increases in March, April, May and November.  Those seven tightenings raised the Cash Rate to 4.75% from a cyclical low of 3.0% but left such well below the last cyclical high of 7.25%.

Officials have not seen a need to tighten further at this time.  Today’s statement from Governor Stevens reiterates that policy is now “mildly restrictive” and “appropriate.”  More restraint down the road is probable because “over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected,” but the statement leaves no sense of urgency to shift policy to a more restrictive posture soon.  Observations are made that credit growth remains quite modest, skilled labor shortages are confined, and that weather-related resource cost increases should prove temporary.  The strongest real effective Australian dollar in several decades “could be expected to exert additional restraint on [ prices in] the traded sector.”

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



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