RBA keeps cut in reserve

Why move now when you can wait until at least August? That seems to have been the reasoning behind the largely expected decision by the Reserve Bank to hold off on moving interest rates.

Why move now when you can wait until at least August?

That seems to have been the reasoning behind the largely expected decision by the Reserve Bank to hold off on moving interest rates.

The key take-out from the terse statement accompanying the decision was this: The fall in the Australian dollar in the past few months should not adversely impact inflation.

For currency traders and economists, who sift through every word like shamans examine bones, that’s code that if further interest rate cuts continue to push the lower dollar, there is no danger of a break-out in inflation.

The gun is loaded and the safety catch is off. Glenn Stevens simply wants more convincing to pull the trigger. Not surprisingly, the dollar automatically fell on speculation of a cut next month

Despite an economy clearly growing below trend and unemployment trending higher, and with worrying headwinds affecting China, our major trading partner, the RBA has opted to wait for hard evidence.

Specifically, the quarterly Consumer Price Index, due out later this month, and China’s GDP figures will figure prominently in next month’s meeting.

From the statement accompanying the decision, the RBA believes it has injected enough stimulus into the economy for now and that the weaker currency is starting to take the lead in reviving the non-resources sector.

The recent leadership spill may have also played a part, with the political uncertainty created impacting the willingness of the RBA to make further changes unless urgently required.

But Australian manufacturing and service industries, having laboured under the suffocating weight of an inflated currency for so long, need a further jolt before a decent pulse can be detected.

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