Aus­tralian cen­tral bank holds key rates

Re­serve Bank of Aus­tralia leaves door open to more eas­ing

The Pak Banker - - Front Page -


Aus­tralia’s cen­tral bank skipped a chance to ease and held rates at 3.25 per cent on Tues­day cit­ing higher in­fla­tion at home and an im­proved global back­ground, though it still left the door open for more stim­u­lus if needed. The Aus­tralian dol­lar jumped half a cent as the mar­ket had been di­vided on whether the Re­serve Bank of Aus­tralia (RBA) would choose to re­in­force the im­pact of its Oc­to­ber eas­ing with a cut to 3 per cent. In the end, it chose to pause.

“At to­day’s meet­ing, with prices data slightly higher than expected and re­cent in­for­ma­tion on the world econ­omy slightly more pos­i­tive, the Board judged that the stance of mone­tary pol­icy was ap­pro­pri­ate for the time be­ing,” RBA Gover­nor Glenn Stevens said af­ter the bank’s monthly pol­icy meet­ing.

An­a­lysts saw the use of “for the time be­ing” as a sign the bank still had an eas­ing bias and might yet chose to move in De­cem­ber or per­haps Fe­bru­ary de­pend­ing on in­com­ing data. (The RBA board does not meet in Jan­uary.) “There are a few things they are wor­ried about, but not suf­fi­ciently so that they have to do any­thing about it right now,” said Stephen Walters, chief econ­o­mist at JPMor­gan. “We do think they’ll cut. We’ve got De­cem­ber.”

A ma­jor­ity of economists polled by Reuters had expected a cut this week, but mar­kets had been less sure, pric­ing in around a 50-50 chance of a move.

The steady de­ci­sion saw the Aus­tralian dol­lar climb to a five-week high on its US coun­ter­part at A$1.0426, while the euro sank to a two-month trough at A$1.2256.

In­vestors rowed back wa­gers on the scale of fu­ture eas­ing with in­ter­bank fu­tures now im­ply­ing a 56 prob­a­bil­ity of a cut by Christ­mas, down from al­most 100 per cent pre­vi­ously.

Overnight in­dexed swaps, which es­sen­tially show where the mar­ket thinks the cash rate is head­ing, put rates at 2.87 per cent in 12 months against 2.74 per cent on Mon­day.

Lean­ing against a cut this week was a sur­pris­ingly high read­ing for un­der­ly­ing in­fla­tion in the third quar­ter, which picked up to an an­nual 2.5 per­cent to be back in the mid­dle of the RBA’s long-term tar­get band of 2 to 3 per­cent.

The global out­look has also be­come a shade less gloomy, with data point­ing to some sta­bil­i­sa­tion in China and steady, if slow, im­prove­ment in the United States.

The RBA has al­ready eased by 150 ba­sis points in the past year but Aus­tralian rates re­main high rel­a­tive to most of its rich-world peers.

With rates near zero in the United States, Ja­pan and UK, those coun­tries have had to take ever more ex­otic stim­u­lus mea­sures by buy­ing mas­sive amounts of gov­ern­ment debt.

Still, RBA chief Stevens did note that lower prices for some of Aus­tralia’s key re­source ex­ports, no­tably iron ore and coal, im­pacted the out­look for min­ing in­vest­ment.

“Look­ing ahead, the peak in re­source in­vest­ment is likely to oc­cur next year, at a lower level than expected six months ago. As this peak ap­proaches, the Board will be mon­i­tor­ing the strength of other compo- nents of de­mand,” he said.

With that peak in view, pol­i­cy­mak­ers are try­ing to stim­u­late other sec­tors of the econ­omy, and par­tic­u­larly home build­ing. “Whilst the RBA ex­pects higher pop­u­la­tion growth and lower in­ter­est rates to un­der­pin a re­cov­ery in res­i­den­tial con­struc­tion, we are less op­ti­mistic,” said Michael Turner, a strate­gist at RBC Cap­i­tal Mar­kets. Which is one rea­son he still ex­pects fur­ther eas­ing. “We thought 2.75 per­cent would be the low this cy­cle, and we still think that af­ter to­day.”

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