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GOVERNOR OF RESERVE BANK SAYS INTEREST RATES TO STAY DOWN FOR THE NEAR TERM

Interest rates to stay on hold

26 Aug, 2011 04:38 PM

Several economists believe interest rates are firmly on hold after listening to Reserve Bank governor Glenn Stevens’ bi-annual update on the state of the economy.

Mr Stevens appeared before a parliamentary committee today to answer politicians’ questions about the Reserve Bank and economics.

HSBC chief economist Paul Bloxham said the testimony suggested interest rates were on hold for now.

Well overdue as sometimes the reserve bank goes into reaction mode after the horse has bolted & forcing the people to deal with severe austerity measures without the need for it. We are suffering Mr governor & it’s about time you had your finger on the pulse.

“Despite the market pricing cuts, the RBA seem very unlikely to be cutting anytime soon. Inflation is still the key concern and with their latest forecasts for above target CPI there is a huge hurdle for a direction change,’’ he said.

“Indeed, the risks to inflation are still to the upside, which suggests the next move will be up, not down. But, as the governor said today, in times of financial turmoil it is often best just to ‘sit still’. The clear risk is for a longer pause, with much depending on financial market developments.’’

He said Mr Stevens had suggested that when setting rates the bank must “consider not only the central forecast but also the possibility that things turn out differently from that forecast”.

“In the [question and answer session], the governor suggested that in periods of tremendous financial turbulence, it is often a good time to ‘sit still’ if you can afford to. Interestingly, he also suggested that he still feels as though the RBA is still ‘ahead of the game’ on inflation,’’ he said.

CommSec chief economist Craig James said Mr Stevens had not given any hints about rate cuts or increases.

“While the Governor feels he has inflation under control he noted that RBA forecasts “have inflation not exploding but going up’’,’’ he said.

“The Reserve Bank has revealed its estimates on how extra income from the increased terms of trade is used across the economy. Of every extra dollar earned from the resources sector, the RBA estimates that 50-60c stays in the country through taxes, wages, purchasing and returns to shareholders.’’

He said Mr Stevens also made a number of controversial statements

Sourced & published by Henry Sapiecha

August 27th, 2011
Topic: INTEREST RATES INFLATION, Money & Investments Tags: , , , , , , ,

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