RBA holds off on expected rate cut

by BN07 Nov 2012

Economists have shifted their rate cut expectations to December this year, following a decision from the Reserve BAnk board to keep the cash rate on hold at its meeting yesterday.

The RBA said in a statement yesterday that higher than expected consumer price data as well as more positive news on the world economy combined to ease the necessity for further cutting rates.

There are also expectations that the economy will continue to benefit from earlier rate cuts.

 "Over the past year, monetary policy has become more accommodative. Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns," the statement from the RBA read.

"While the impact of these changes takes some time to work through the economy, there are signs of easier conditions starting to have some of the expected effects. Business demand for external funding has increased this year, the housing market has strengthened and share prices have risen in line with markets overseas."

The RBA said recent outcomes on inflation were slightly higher than expected, though they still show inflation consistent with the medium-term target.

"Underlying measures are around 2.5% over the year to September, and headline CPI inflation a little lower than that. The introduction of the carbon price affected consumer prices in the September quarter, and there could be some further small effects over the next couple of quarters," the statement read.

Global growth is likely to be below average for a time according to the RBA, but risks in Europe are being balanced by a return to form in the US and stability in Asia.

"Risks to the outlook are still seen to be on the downside, largely as a result of the situation in Europe, where economic activity is still contracting. Risks elsewhere seem more balanced. The United States is recording moderate growth, while recent data from China suggest growth there has stabilised."