RBA Unlikely To Cut Interest Rate Unless Economy Weakens

21 February 2012 - Which Way to Pay

RBA Unlikely To Cut Interest Rate Unless Economy Weakens

The Reserve Bank of Australia looks set to keep interest rates on hold at 4.25 % unless there is an unexpected weakening in the economy or the situation in Europe worsens. Yesterday, minutes of the monetary policy meeting held on February 7th, were released showing that, “They judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for further easing in monetary policy.”

The minutes also stated that, “While the financial situation in Europe remained fragile, the likelihood of an extremely bad outcome seemed to have diminished somewhat over the previous couple of months, partly reflecting actions by the European policy makers.” The central bank said, “With growth expected to be close to trend and inflation consistent with the (2 % - 3 %) target, the board considered that this setting was appropriate for the overall macroeconomic outlook.” Stephen Walters, chief economist at JP Morgan Australia, said that the minutes highlighted that the RBA were satisfied that the Australian economy would continue to grow at around trend and that inflation would remain within its target range.

Since the meeting, Australia’s four biggest banks raised their standard variable mortgage rates independently from the RBA, which has caused some criticism from the government.