SYDNEY, Nov 6 (Reuters) – Australia’s central bank held
interest rates steady at 3.25 percent on Tuesday, saying
slightly higher-than-expected inflation at home and an improving
global economy meant the current monetary policy setting was
appropriate.
The Australian dollar jumped about half a U.S. cent
as many analysts had expected the bank would ease this week,
while the market had put the odds at less than 50-50. The
Reserve Bank of Australia (RBA) announced the decision after its
monthly policy meeting.
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KEY POINTS:
* RBA holds cash rate steady at 3.25 pct at its Nov. 6
meeting, having cut by 100 basis points between May and October.
* RBA notes slightly higher-than-expected price data at home
and a slightly more positive outlook on the world economy.
* RBA statement says still expects inflation to be
consistent with its 2-3 percent target range over the next one
to two years.
* RBA says effect of past rate cuts can be expected over
time and will continue to monitor those effects.
* RBA says risks to global growth outlook still on the
downside, largely due to the situation in Europe. But it notes
that recent data from China suggest growth there has stabilised.
* Text of the statement can be found on or by
double-clicking on
* The Reserve Bank’s Web site is at: http://www.rba.gov.au/
COMMENTARY:
MICHAEL BLYTHE, CHIEF ECONOMIST, COMMONWEALTH BANK:
“The tone of the statement suggests that the next move, if
there is one, is a little way off. Inflation is obviously a bit
of an issue for them and if that’s case they’ll want to see
another CPI number. So February is the next real possibility for
action. It now looks like the data has to make the case for a
move in rates, rather than any sort of precautionary positioning
because of perceived risks. We’re keeping one more rate cut in
our forecasts, but we’ll push it back to February.”
SHANE OLIVER, HEAD OF INVESTMENT STRATEGY, AMP CAPITAL
INVESTORS
“Not particularly surprising. I think that this meeting was
always seen as a close call. I think basically the Reserve Bank
has been waiting to see mode.”
JOSH WILLIAMSON, SENIOR ECONOMIST, CITI
“This is a very neutral policy statement. They are happy
with the stance of monetary policy where it is at the moment.
They are more content with China stabilising and the U.S.
growing. There is probably one more cut in the first half of
next year… With the cut they did in October, they still
believe borrowing costs are below average and provide enough
stimulus to the economy.”
MICHAEL TURNER, STRATEGIST, RBC CAPITAL MARKETS
“It is obviously a touch surprising. We thought the risks
were modestly skewed in favour of easing. CPI was obviously to
the upside to their forecasts, and with the better global
backdrop, they preferred to sit it out, at least for today.
Whether it is December (rate cut) we’re not sure. We thought
2.75 would be the low this cycle, and we still think that after
today.”
BRIAN REDICAN, MACQUARIE BANK, SENIOR ECONOMIST
“The RBA is thinking that the glass is half full again. The
global economy is looking better. There is no sign of weakness
in Australia and they have got time to wait…before taking any
further action.
“There is a fair amount of confidence that what they have
done is sufficient. But whether that confidence is justified is
what we are going to find out over the next month.
“We still think the Reserve Bank will cut rate further than
they have done so far.”
STEPHEN WALTERS, CHIEF ECONOMIST, JPMORGAN
“I think that they are highlighting that the inflation
numbers have been a bit on the high side. But I think we are a
long way from having an inflation problem. They are not
suggesting that at all. And there’s still enough through the
statement about the downside risk globally and the peak in the
mining investment cycle being sometime next year. And even
though housing is still subdued, they are seeing some
improvement. So it’s almost like a wait-and-see type statement.
“There are a few things they are worried about, but not
sufficiently so that they have to do anything about it right
now. We do think they’ll cut. We’ve got December. We’ve still
got rate cuts coming because of these anxieties that they’ve
clearly got.”
MARKET REACTION:
The Australian dollar jumped about half a U.S. cent
to $1.0418 after the policy announcement. Interbank futures
tumbled as the market had not been fully priced for a
move this week. The market still implies further easing toward
2.75 pct over time.
BACKGROUND:
* A Reuters poll of 20 analysts had found 15 expected the
RBA would cut by a quarter point to 3 pct this week, while the
rest looked for a pause until at least December.
* The RBA has cut by 100 basis points since May, citing a
global slowdown, a softer labour market at home and falling
prices for some of Australia’s major resource exports.
* Lower prices have led some miners to rein back on their
more ambitious spending plans such that the RBA now believes the
boom in resource investment will peak earlier than previously
expected, around the middle of next year.
* The local dollar has remained high even as export prices
slid, threatening to be a drag on currency-sensitive sectors
such as manufacturing and tourism.
* So policy makers are trying to stimulate other sectors of
the economy, and particularly home building, to make up for the
pullback in mining spending when that eventually comes.
* Softness in labour demand has also nudged up the jobless
rate, a trend the RBA would prefer to nip in the bud before it
starts to hurt consumer sentiment and spending.
* Data suggests past rate cuts have had only a modest impact
on domestic activity, with house prices just a shade firmer and
credit growth still very subdued.
* Leaning against a cut was a surprisingly high reading for
inflation in the third quarter, which saw core inflation pick up
to an annual 2.5 pct to be in the middle of the RBA target band.
* The global outlook has become a shade less gloomy, with
data pointing to stabilisation in China and steady, if slow,
improvement in the United States.
(Reporting by Wayne Cole)
