Reserve Bank of Australia Less Inclined to Cut Interest Rates

September 3, 2013

After each of the seven prior seven policy meetings of the RBA Board, a statement of explanation included forward guidance that interest rates could be cut further: “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.”  In a rhetorical tweak away from ever-looser policy, such language was deleted from today’s statement.  The RBA Official Cash Rate, which had been cut in May and August by 25 basis points each, was left today at 2.5%.  Previously, two cuts totaling 50 bps in 2011 and four reductions summing to 125 bps in 2012 had been made.  The latest statement calls the current policy “appropriate” and makes some additional assertions of note.

  • It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
  • Inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years.
  • The economy has been growing a bit below trend over the past year and should continue doing so in the near term.  Mining investment will slow.
  • The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values, and further effects can be expected over time.

October’s Board meeting is scheduled for the 1st.

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



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