Rates on hold

by David Taylor

The Reserve Bank of Australia decided to leave rates on hold today at 4.75 per cent.
 
The bank's key concern is inflation. And as far as they are concerned - looking as far ahead as the "medium term" - it is under control. Lower wages, a higher Aussie dollar, and greater competition in some key markets being some reasons for this. Increased competition was singled out due to the pressure that higher utilities prices are placing on inflation.
 
There was also concern that the recent flood disaster would put upwards pressure on food prices. This will in fact occur (as you've probably already noticed in the super market) but it will only affect the March quarter inflation read as far as the RBA is concerned.
 
The RBA also noted that asset prices remain subdued and the Australian consumer is still rather shy - preferring to save rather than spend.
 
The Aussie dollar took the news in its stride. If anything, the comments from the RBA seemed a little dovish (no rise expected any time soon on contained inflation) but there's still plenty supporting the local unit (including robust demand for commodities).
 
It's clear that the sluggish international macro-economic environment is allowing "accomodative" monetary policies world-wide - indicating that other countries are not in a rush to lift rates either.

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.