Australia | Nov 03 2009
By Greg Peel
“With the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” (My emphasis)
Most economists were expecting the Reserve Bank to raise its cash rate by 25 basis points today, from 3.25% to 3.50%, but a small school suggested a full 50 points could be expected.
It is now likely there will be no further expectation of rises of 50 basis points in the near future, given the above statement from RBA governor Glenn Stevens. The Board has stated its intention to “lessen gradually” its monetary policy stimulus, which another way of saying it will “gradually” raise the cash rate towards normal levels.
The clue was actually in the October statement, in which Stevens stated it was prudent to “begin to lessen gradually”. Only the “begin” is missing this month.
Elsewhere in the statement one struggles to find any other specific changes in language from the previous statement.
Last month the global economy was “resuming” growth. This month the global economy “has resumed” growth. Last month sentiment in financial markets was “continuing to improve”, this month sentiment “is much better than earlier in the year”. Last month unemployment had “not risen as far as expected”, this month “there have been some early signs of improvement in labour market conditions”. And as such:
“The rate of unemployment is now likely to peak at a considerably lower level than earlier expected”.
And there you have it. It was 25 points today and, judging by no obvious change in RBA thinking, it will be 25 again in December, assuming no crisis or major shift in the data in the meantime.
Read the full RBA Statement here.