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RBA Leave Rates on Hold.....for Now

Danny Masri - Tuesday, August 02, 2011

The Reserve Bank Board Meeting for August 2011

    • RBA left the cash rate at 4.75%
    • The Board is concerned about the pickup in underlying inflation
    • A Rate rise was considered
    • The Board is looking for an easing in financial market nerves and  improvement in domestic non-mining economic data

What a difference a few weeks make. Views on the direction of interest rates have shifted between rate cuts to rate increases in the end the RBA stood still reluctantly but issued a warning of further increases if inflation can’t be contained in the shorter term.

The June quarter delivered an annualised underlying inflation rate of 3.5%; this in itself would have produced a rate rise. However the difficulty in getting a clear read on the economy has seen the RBA prudently adopt a wait and see approach.

As we indicated last month, the case for further interest rate cuts or increases can be equally supported with the release of new economic data.

    • Global growth continues but slowed in Q2
    • Domestically resource related parts of the economy are strong but other areas are suffering from high Aussie dollar and cautious consumer
    • Underlying inflation is trending up
    • Productivity growth is weak with inflation is putting pressure on wages growth in a tightening labour market.

It is this conflicting data that provided a reprieve from a further rate rise today; however it clearer now that the only direction the RBA can move in the future is up, the only question is when?





 



 


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