Reserve Bank of Australia Cuts Official Cash Rate (OCR) by 25 Basis Points

December 4, 2012

At 3.0%, Australia’s OCR has now dropped 175 basis points since November 2011, fully erasing all of the post-Great Recession tightening.  The decision to enact a further reduction in December had been expected.  There had been in fact some speculation that the OCR might be slashed by 50 bps as was done in May.  Subsequent cuts of 25 bps were implemented in June, October and now May, as well as in November and December of 2011.  A statement from monetary officials today noted that the full stimulatory effect of prior rate reductions, not to mention today’s additional action, had not been felt.  The statement asserts, however, that world demand will be expanding somewhat below trend and that the baseline scenario is associated with downwardly-biased risks.  Also, elements of domestic demand are growing at a more subdued pace than earlier.  Today’s action was set up by a series of recent Australian indicators, including news today of a larger A$ 14.9 billion third-quarter current account and a 7.6% slide in October building permits, have been more disappointing than forecast.  Today’s action is not likely to impede in-target inflation over the medium term.

The statement from officials released today is not as dovish as expected.  The RBA Board meets monthly except during January (Australia’s mid-summer).  So the next scheduled policy meeting will be in early February.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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