RBA leaves rates unchanged

It was no huge surprise that Governor Glenn Stevens and his team at the Reserve Bank chose to leave rates unchanged at today’s monthly board meeting. The official cash rate will remain at 3 per cent which is almost a 50 year low in Australia.

In his statement on monetary policy, Governor Stevens highlighted that the effects of the RBA’s aggressive approach to monetary policy and the federal Government’s stimulus packages to date are still to be clearly seen in the Australian economy.

He said: "Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards and business loan rates are below average, reducing debt servicing burdens considerably. Much of the effect of these changes is yet to be observed. The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead."

All this means is that the RBA doesn’t want to cut rates again because it’s worried about too much stimulation and the possible inflationary side effects. Governor Stevens noted that signs of stabilisation and early recovery in markets like China are positive for Australia’s outlook.

"The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little. The considerable economic policy stimulus in train in most countries should help contain the downturn and support an eventual recovery," he says.

The RBA appears to be optimistic about the second half of the year, which suggests that it will keep rates on hold over the coming months. However, if things do not transpire as expected in countries like China, which is Australia’s largest trading partner, then the RBA may be forced to cut sooner than expected.

While an increase in unemployment in Australia and additional Federal Government fiscal stimulation measures will still be important considerations for the central bank, the biggest factors influencing the RBA’s decision making processes throughout the rest of the year will be the further deterioration in the global economy. As a result, most market participants will remain firmly focused on the key economic indicators being released each month from the United States and China.

The RBA next meets in early June.

Infochoice.com.au