Economy

News and updates on the Australian economy and world markets that impact on the Australian economy.

11 – 0: The RBA Keeps Rates on Hold for the Eleventh Straight Month.

Mortgage One - Tuesday, October 04, 2011

The RBA kept rates on hold, again, as expected in October, but is progressively becoming more dovish in tone. The RBA has now hinted at the possibility of cutting rates if needed.

 

The extreme volatility in financial markets driven by the sovereign debt crisis in Europe and the heightened downside risks to global growth remained at the RBA’s primary concern. However, The RBA has maintained its upbeat assessment on Asia, noting that growth in emerging Asia “remained solid, although slower than in 2010”. It was noted that investment and consumption in China had softened a little with the availability of finance to certain industries being quite tight, but that the broader economy was still growing at a robust pace and that exports were still growing to advanced economies.

 

Domestically, the RBA continues to expect the terms of trade to have risen further in the September quarter to another record high. It is widely expected that underlying inflation in Q3 (released 26 October) to come in at 0.6%, which would take the annual rate to 2.6% and likely to remain within the RBA’s comfort zone.

 

However, financial market sentiment should improve throughout October amid hopes that European leaders can unveil a comprehensive strategy to address their crisis. In addition, recent domestic demand partial indicators have improved – including retail sales, building approvals and employment data all suggest that domestic economic activity is holding up relatively well. Further, consumer and business confidence have partially recovered after sustaining heavy falls in August.

 

Although there are hopes for a rate cut in November, the consensus is for rates to remain on hold.





 



 


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