At its meeting today the RBA decided to leave rates on hold at 3.5%.
The statement was along the lines of what you would expect with regard to the global economy and the fact that it isn’t going too well:
… global GDP will grow at no more than average pace in 2012.
And that this is impacting on commodities and our terms of trade:
Most commodity prices have declined, which has helped to reduce inflation and provided scope for some countries to ease macroeconomic policies. Australia’s terms of trade peaked nearly a year ago, though they remain historically high.
Governor Stevens then moved onto China, the US and European situations using pretty much the same language that they have used these past few months.
In Australia the outlook looks pretty sanguine from the Boardroom at Martin Place it seems with the Governor noting:
In Australia, most indicators suggest growth close to trend overall. Labour market data show moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.
Inflation remains low, with underlying measures near 2 per cent over the year to June, and headline CPI inflation lower than that. The effects of the price on carbon will start to affect these measures over the next couple of quarters. The Bank’s assessment of the outlook for inflation is unchanged: it is expected to be consistent with the target over the next one to two years.
So no worries on inflation, growth about trend and the employment situation okay.
Indeed in what is a pretty firm suggestion that the RBA is buying the bounce in the economy that recent data is possibly suggesting they note:
As a result of the sequence of earlier decisions, monetary policy is easier than it was for most of 2011, with interest rates for borrowers a little below their medium-term averages. While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years.
But there is one big handbrake on the economy which, with the low inflation outlook and peaked terms of trade, suggests that even if the RBA’s outlook on growth is right they might still cut in coming months and that is the comment on the Australian Dollar:
The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.
Indeed, the Aussie is defying historical relationships on the back of portfolio flows as we are truly the least ugly Triple A rated country on the planet and we have the most free float.
Link to the RBA statement is here