No Urgency to Tighten Australian Monetary Policy

June 7, 2011

The Reserve Bank of Australia implemented three 25-basis point rate hikes in 2009 and four more in 2010, but the current “mildly restrictive” stance has not been changed in the last seven months and continues to be deemed “appropriate” according to a statement released today after the Policy Board held its monthly meeting.  The tone of this new communique is accepting, and several observations suggest that the Official Cash Rate will be left at 4.75% next month and probably at the August meeting as well.

  • The inflation-adjusted trade-weighted Aussie dollar is near its strongest level in decades and is restraining import and export prices.
  • Consumer spending has been cautious, and consumer credit demand remains quite modest.
  • The boost from fiscal stimulus is ebbing.
  • Investment intentions outside of the resource sector have been scaled back.
  • Australia’s floods depressed economic growth last quarter.  Coal production has recovered more slowly than anticipated.
  • Growth in jobs has moderated.  Shortages of skilled labor are spotty.
  • Officials project CPI inflation over the coming 12 months to be near target as temporary price shocks dissipate.

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



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