Give rate cuts time to work, RBA says

BIG cuts to Australia’s cash rate in May and June need to be given time to take effect, the Reserve Bank said yesterday.

To the surprise of no one, the RBA left the cash rate on hold at 3.5%.

The central bank last cut the cash rate in June, when it trimmed 25 basis points. That followed a 0.75% cut in May.

Most economists are still predicting a further cut in November.

RBA governor Glenn Stevens said home loan interest rates were slightly below medium-term averages because of the previous cuts.

“The impact of those changes is still working its way through the economy, but dwelling prices have firmed a little and business credit has picked up this year,” Mr Stevens said.

He said while Australia’s exchange rate had declined in the past two months, it was still higher than expected.

The RBA was confident inflation would remain within the 2-3% target band for at least the next year.

The bank was also waiting to see what effect the carbon tax would have on inflation

Mr Stevens said slowing growth on world markets, particularly Asia, was having an effect on commodity prices.

He said while growth in China was still reasonably strong, it was well below the exceptional pace seen in recent years.

“Some recent indicators have been weaker, which has added to uncertainty about near-term growth.

“Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe,” Mr Stevens said.