Menu
Menu
RBA gives no clear pointers on rates

RBA gives no clear pointers on rates

If the announcement by the Reserve Bank of Australia (RBA) leaves you in the dark about the outlook for interest rates, the chances are the central bank is also fumbling for the light switch.

The announcement by RBA governor Glenn Stevens, after its board's monthly monetary policy meeting on Tuesday, confirmed expectations that the cash rate would stay at 3.5 per cent.

It's been at that level since the drop from 3.75 per cent in June extended the cuts since early November to a full percentage point.

But there was nothing in the statement pointing to a likely cut in the near future.

The statement summarised the RBA's current assessment in its final paragraph, saying that "with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate".

There was the now-standard warning that domestic costs would have to shoulder more of the effort of keeping inflation under control, now that the deflationary effect of earlier exchange rate rises was waning.

And there was the routine acknowledgement of the "very difficult task" facing Europe's policymakers.

That problem - not just the turmoil in euro-area financial markets, but the likely ongoing stagnation in the euro zone once rate financial storm blows over - probably means more rate cuts will be needed from the RBA.

Not that such a possibility was mooted in the RBA's statement on Tuesday.

If, a year from now, the cash rate is still at 3.5 per cent, no one will be able to point to the statement on Tuesday and claim they were misled.

The logical implication is that the RBA is unconvinced that the economy's prospects are likely to deteriorate enough to warrant another rate cut in the next few months.

For its part, the futures market's gloom over the economic outlook is more strongly held than any misgivings the RBA appears to harbour.

The market is still pricing the cash rate at three per cent by the end of this year, just as it was on Monday.

The first move is seen as a one-in-three chance for the next RBA board meeting on September 4 and fully factored in for the October 2 meeting.

But there's nothing in the RBA's announcement offering any clear pointer to those moves.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Join the newsletter!

Error: Please check your email address.

Tags Reserve Bank of AustraliaRBAInterest rates

More about RBAReserve Bank of Australia

Show Comments

Market Place

Computerworld
ARN
Techworld
CMO