Australia | May 05 2009
By Rudi Filapek-Vandyck
“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.”
The above paragraph is probably the most important one in today’s statement released by the Reserve Bank of Australia following the May 5th Board meeting which ended with no change to the official cash rate (3%).
The decision is in line with market expectations.
Today’s RBA statement concludes with:
“In assessing whether further reductions in the cash rate are required over the period ahead, the Board will monitor how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity.”
The RBA is keeping its powder dry in the hope that stimulus injected in the global and Australian economies might be sufficient to prevent another Great Depression era from taking place. Under a best case scenario this could imply official interest rates have now seen their bottom at 3%, though virtually no-one in the Australian investment community seriously considers such an outcome for the year ahead (with one or two exceptions).
Unemployment is expected to rise in the months ahead, while inflation is expected to moderate further.