Australia | Jul 06 2010
By Rudi Filapek-Vandyck
The Reserve Bank of Australia has no intention to raise the official cash rate from its current 4.5%. Financial markets sort of already assumed this much with every economist and his dog predicting there would be no change at the central bank's June policy meeting, but what about the rest of the year?
Today's statement released via the RBA website to explain why a decision was made to leave the official cash rate unchanged seems to suggest the RBA is now on hold, and happy to stay on hold unless it is forced to make a change.
In the official RBA wordings this reads as follows: “The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. Pending further information about international and local conditions for demand and prices, the Board views this setting of monetary policy as appropriate.”
To extra highlight its present neutral stance, today's statement also points out that consumer inflation might be a little higher in the short term, due to factors that cannot be influenced by the RBA, but inflation is of no concern to the monetary policymakers.
In today's official statement, this reads as follows: “The rate of CPI increase is likely to be a little above 3 per cent in the near term, due to the effects of increases in tobacco taxes announced earlier in the year and significant increases in prices for utilities.”
Also: “Underlying inflation appears likely to be in the upper half of the target zone over the next year”.
All other paragraphs in today's statement are focused on international uncertainties and potential threats to the world's economic outlook.
I think the message is clear: unless something happens that today cannot be predicted with any certainty, the RBA is now happy to sit on the sidelines, and the RBA will remain on the sidelines for the foreseeable future.