Monday, December 3, 2012

Australia cuts rate 25 bps, says AUD higher than expected

    The Australian central bank cut its benchmark cash rate by 25 basis points to 3.00 percent, as expected by most economists, saying it was appropriate to ease the policy stance further now to help foster sustainable growth in demand and attain inflation that is consistent with the bank's target.
    The Reserve Bank of Australia said its previous rate cuts were starting to have some of the expected effects on economic activity "though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook."
    The Reserve Bank said the full effect of its earlier rate cuts - the bank has cut rates by 175 basis points since September 2011 - are yet to be observed but a return to the very strong growth rates in private consumption is unlikely and investment outside the resources sector is expected to remain relatively subdued while public spending is forecast to be constrained.
    Economic growth in Australia has still been running close to trend, led by strong capital spending in the resources sector, but "looking ahead, recent data confirm that the peak in resource investment is approaching," the Reserve Bank said in a statement, quoting Governor Glenn Stevens.

    It added that risks to the global economic outlook were still on the downside, largely due to Europe's debt crises but also due to uncertainty over the course of U.S. fiscal policy.
    Australia's Gross Domestic Product expanded by 0.6 percent in the second quarter from the first for a n annual growth rate of 3.7 percent, down from 4.3 percent.
    Inflation is expected to rise above the bank's target over the next couple of quarters due to an introduction of carbon taxes but inflation should then remain consistent with the bank's target over the next one to two years. In the third quarter, the inflation rate rose to 2 percent from 1.2 percent.
    The Reserve Bank targets inflation of 1-3 percent.
    Last month the Reserve Bank surprised most observers by keeping rates steady, saying the outlook for the global economy was looking a bit more positive.
    But since then it has cut its growth forecast due to a slowdown in investment by mining companies.

The bank expects average growth of 3.0 percent for the fiscal year that ends in June, down from the 3-3.5 percent it forecast in August.
   Last month the Organisation for Economic Co-operation and Development (OECD) forecast that the Reserve Bank would cut its cash rate in December and then early next year, and then keep the rate at an all-time low through 2014.
   The OECD expects Australia's economy to grow by 3.7 per cent this year, 3 per cent next year and 3.2 per cent in 2014.

1 comment:

  1. Recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected. The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving. This should help to lessen increases in prices for non-tradables. The Bank's forecast remains that inflation over the next one to two years will be consistent with the target.

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