Reserve Bank of Australia’s Cash Rate Cut Again — This Time by 25 Basis Points
June 5, 2012
At today’s meeting, the Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.
So concluded a statement from Reserve Bank of Australia Governor Stevens that defends today’s 25-bp cut of the Official Cash Rate to 3.50%. This was the fourth reduction, following 25-bp cuts last November and December and a 50-bp cut on May 1st of this year. The statement observes
- Further weakening in Europe and some further moderation in growth in China.
- A deterioration of world financial market sentiment.
- In Australia, “both households and businesses continue to exhibit a degree of precautionary behavior, which may continue in the near term.”
- Aussie CPI inflation is expected to stay within the 2-3% target range over the forecast horizon and to hover near the lower boundary in the near term.
- Housing remains subdued, and prices “have recently declined again.”
- Domestic “credit growth remains subdued overall.”
- Australia’s terms of trade peaked “about six months ago” but remains “historically high.”
Today’s rate cut was widely anticipated. A minority of analysts even thought officials would do another 50-basis point move. The statement leaves open the possibility that the easing cycle isn’t yet over. Rates bottomed at 3.0% during the global Great Recession even though Australia managed to avoid a contraction of GDP then.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
ShareThis
