RBA ready to cut rates, just not yet

Written By Unknown on Selasa, 05 Februari 2013 | 15.02

THE central bank is ready to cut the cash rate again if needed but it left many consumers and businesses disappointed after its first board meeting of the year.

However, the Reserve Bank of Australia's (RBA) decision to leave the cash rate unchanged at three per cent on Tuesday did coincide with two pieces of upbeat data - the biggest quarterly rise in house prices in over two years and a sharp narrowing of the nation's trade deficit.

RBA governor Glenn Stevens said the board judged it was "prudent" to hold steady at this stage.

He said interest rate cuts over the past year or so were appropriate, given inflation is likely to be consistent with the two to three per cent target and with economic growth likely to be a little below trend over the coming year.

"The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," Mr Stevens said in a statement.

Business groups believe the central bank should have acted now.

Financial markets are fully priced for a 25 basis point cut to an all-time low of 2.75 per cent by May.

However, Michael Blythe, the chief economist of the nation's biggest home lender, the Commonwealth Bank of Australia, believes that while the RBA has a bias to ease further, the cash rate will remain at three per cent during 2013.

He said previous rate reductions were to relieve some of the pain from a strong Australian dollar and support the transition to the non-mining parts of the economy.

"It may not be quite 'mission accomplished' but a lot of progress has been made," Mr Blythe said in a note to clients.

Treasurer Wayne Swan said homeowners were still better off by $5000 a year on a $300,000 mortgage than they were when the government came to power in 2007.

"The RBA has cut rates repeatedly over the last 15 months, partly in response to global volatility, but also because the government has been running a very strong fiscal policy," he told parliament, to jeers from opposition MPs.

Mr Stevens said downside risks in the global economy appear to have abated "for the moment at least".

Trade Minister Craig Emerson said the latest trade data confirmed the early signs of a global economic recovery and the continued strength of Asia.

The trade balance of goods and services for December was a seasonally adjusted deficit of $427 million in December, compared with a revised $2.79 billion shortfall in November.

This reflected a six per cent fall in imports and a three per cent rise in exports.

"Australian exporters are well-placed to benefit from the expected strengthening of demand in the Asian region," Dr Emerson said in a statement.

At the same time, the Australian Bureau of Statistics' house price index for the eight capital cities rose 1.6 per cent in the December quarter, the largest quarterly rise since June 2010.

Prices rose 2.1 per cent over the year.


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