Australia | Jul 07 2009
By Greg Peel
The Reserve Bank today left its cash rate on hold at 3% for the third month running. It was April when the board made its most recent cut from 3.25%.
One is in need of a magnifying glass to attempt to spot the difference between this month’s accompanying statement from RBA chairman Glenn Stevens and last month’s. Once again Stevens acknowledges the global economy appears to be stabilising, and China is leading the turnaround. A turnaround in developed economies will be slow, Stevens reiterates, and this month special mention was made of a still struggling Europe.
Last month Stevens noted “The Australian economy has been contracting”. This month this particular statement was replaced with “Economic conditions in Australia have to date not been as weak as expected a few months ago”. But once again Stevens goes on to point out capacity utilisation is back at average levels and labour cost pressures continue to diminish. Housing finance demand remains buoyant but business credit demand continues to decline. Once again, weak inflation conditions give scope for further easing if necessary.
Credit conditions remain tight, Stevens notes, but this month he made special mention of the ease with which corporations are raising secondary capital in order to repair balance sheets.
Finally, Stevens yet again pointed out that monetary policy has been eased “significantly” in recent times and such policy changes still need sufficient time to do their job: “Much of the effect is yet to be observed”.
An easing bias nevertheless remains in place and, as usual, the RBA is closely monitoring the situation. Low inflation leaves room for further cuts, but not this month.
The bulk of economists still believe the RBA will cut again before the year, possibly to 2.5%. A small group, however, believe the next move is up as the Australian economy will recover faster than expected. The RBA will await further data, such as this week’s monthly jobs figures, before deciding to take any further drastic measures.