Reserve Bank of Australia: Policy Paused but Biased Toward Possible Additional Cut

July 2, 2013

The Official Cash Rate of the RBA was cut seven times between November 2011 and May 2013 by a total of 200 basis points to a record low of 2.75%.  As at the prior meeting in early June, the OCR was not changed today and in a released statement declared “appropriate for the time being.”  That’s because somewhat sub-trend is likely to continue in the near term and inflation “is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate.”  More importantly,

The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.

A decision on whether such a boost becomes necessary will likely be influenced heavily by the future performance of the Aussie dollar, which has fallen “around 10% since early June” but remains “at a high level” in the judgement of RBA Governor Stevens and other Board members.  Had the A-dollar not fallen as much as it did already and thereby relaxed monetary conditions, it’s quite plausible that the OCR would be lower than 2.75%.  Today’s statement opines that more depreciation is “possible” but also anticipates that previous interest rate cuts will continue to support Australia’s economy.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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