Reserve Bank of Australia in Wait and See Mode

October 4, 2016

After this month’s Board meeting, Governor Philip Lowe released a statement making the case for not changing the record low 1.5% official cash rate. “Given very subdued growth in labor costs and very low cost pressures elsewhere in the world, quite low inflationĀ is expected to remain the case for some time” despite the moderate economic growth that is projected. Officials consider the current stance “remarkably accommodative” and note that government bond yields are historically low. A period of watch and see is warranted after 25-basis point cuts in the cash rate implemented this year in May and August. The rate was earlier reduced by 50 basis points in late 2011, 100 bps in 2012, 50 bps in 2013, and 50 bps in 2015. Aussie dollar depreciation is also promoting Australia’s current economic transition, and the statement includes a warning that a rising exchange rate could complicate this process.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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