Monday, August 6, 2012

Australia leaves cash rate steady at 3.50%

     The Reserve Bank of Australia (RBA) left its main cash rate unchanged at 3.50 percent, as expected, with the bank saying the country's growth was close to its longer term trend rate and inflation was likely to be consistent with the central bank's target.
    Although global growth has softened, the RBA said growth in China, a major export market for Australia's raw materials,  had moderated, but it did "not appear to be slowing further."
    The growth trend in other parts of Asia is unclear, U.S. growth is moderate while economic activity in Europe is contracting, the RBA said. The Australian economy, however, had yet to see the full impact of last year's rate cuts, the RBA said in a statement, quoting Governor Glenn Stevens.
    "With inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate," Stevens said.

    The RBA's official cash rate, the interest rate on overnight loans in the money market, has been on a declining path since October last year when it was cut from 4.75 percent. This year the rate was cut by 50 basis points in May and then another 25 basis points in June.
    The RBA said its outlook for inflation was unchanged and the rate was expected to be consistent with the 2-3 percent target over the next one to two years, though the effects of the price on carbon will impact inflation. The bank will update its economic forecasts on August 10 when it releases its quarterly monetary policy statement.
    Australia's inflation rate has been declining recently, with the annual rate down to 1.2 percent in the second quarter from a 1.6 percent rate in the first quarter and a 3.1 percent year-on-year rise in the fourth quarter of 2011. 
     Australia's gross domestic product (GDP) expanded by 1.3 percent in the first quarter of 2012 from the previous quarter, up from a 0.4 percent quarterly growth in the fourth quarter of last year.
     The RBA said Europe continues to be the main area of global weakness but financial markets had responded positively to signs that politicians are making progress in the "very difficult task of seeking to put both bank and sovereign balance sheets onto a sound footing, while promoting conditions for improved long-term growth."


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