Australian Monetary Policy Left Unchanged

August 2, 2011

Following seven increases of Australia’s Official Cash Rate between October 2009 and November 2010, the OCR has been steady at 4.75%.  A statement today asserted that those moves were “appropriate” and that financial conditions in Australia are now “tighter than normal,” as attested by subdued credit growth, softer asset prices and an high exchange rate.

The statement predicts “at trend or higher growth over the medium term unless the world economy deteriorates noticeably” and expresses continuing concern about Australian inflation in the future but defends the decision not to tighten policy further as the “prudent” thing to do.

At today’s meeting, the Board considered whether the recent information warranted further policy tightening. On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks.

Analysts increasingly think that no rate changes will occur over the balance of 2011 and that the next move could in fact be a reduction.  Such a view seems to embody an eventual recession in several advanced economies.  Previous statements from the Reserve Bank of Australia had called policy mildly restrictive.  This one talks of a “degree of restraint” at present.

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



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