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RESERVE BANK RATES TO REMAIN LOW @ 2.75%

Rates Stay on Hold but Economists Warn of Further Rate Cuts

CHART PEN GRAPH

Today the Reserve Bank kept the cash rate on hold at 2.75% – in line with the predictions of most senior economists in Australia – sighting the major reason as the recent depreciation of the Australian dollar against the US dollar. TD Securities’ head of Asia-Pacific Research, Annette Beacher stated that “the six percent fall in the Australian dollar since the May Board meeting removes the urgency for near-term action.”

However in an overall sense, low inflation data is providing grounds for perhaps further rate cuts in the months ahead. Inflation only rose by 0.2% in May following the last rate cut but was offset by low fuel prices and declines in domestic travel costs. This is a 0.1% decrease since April and sees the annual inflation rate approach the lower end of the target band of 2-3 % at 2.2%. Furthermore – property prices took a hit declining by 1.2% nationwide and job ads continued to fall by 2.4% – a 0.7% increase since April. If these figures stay the same or worsen – we could see another rate cut as early as next month! According to Westpac’s Chief Economists, Bill Evan “the markets are currently pricing a 76% probability that a cut of 25bps will happen by August 2013 and a 100% probability of that cut occurring by year’s end and a 75% probability of a second cut in that timeframe”.

June 4th, 2013
Topic: INTEREST RATES INFLATION, INTERNATIONAL MONEY MARKET, Money & Investments Tags: , ,

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