Australia | Feb 06 2009
By Rudi Filapek-Vandyck
Will interest rates fall further in Australia? Economists and investors are convinced we haven’t seen the bottom in official cash rates in this cycle as yet, but the Reserve Bank of Australia has remained remarkably coy on the issue in its two public statements this week.
On Tuesday, the announcement that the official cash rate had been cut by another full percentage point to 3.25% contained no further references to any intentions for the months ahead.
Today’s release of the RBA’s Quarterly Statement on Monetary Policy is characterised by a similar absence of any clearly pronounced indication about what policymakers at the RBA are thinking of market expectations that interest rates might have to fall as low as 2% in order to keep the Australian economy going.
The key paragraph in today’s quarterly statement is likely:
“While the international situation is likely to remain difficult for some time, the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad”.
Is the RBA considering a pause in its aggressive policy of monetary easing? One would certainly be inclined to think this might be the case.
Other noteworthy paragraphs in the quarterly statement are:
“The sharp contraction in the global economy in late 2008 suggests that the near-term growth outlook is materially weaker than projected in the November Statement. However, it is likely that the slowdown in Australia will be less severe than in many of our major trading partners.” (p66)
“The economy is expected to begin to pick up from late 2009, with quarterly growth gradually recovering to around trend rates by late 2010.” (p67)
“Underlying inflation is forecast to decline gradually to around 2 per cent by mid 2011”.(p69)
“The forecasts assume that the world economy continues to contract in the first half of 2009, but at a slower pace than seen in late 2008. However, given the ongoing stresses in financial markets and the rapidity of the deterioration in the global situation in late 2008, it is possible that the world economy could weaken by more than has been assumed.” (p69)
The full quarterly statement in pdf will soon be made available via the Special Reports section on the FNArena website.