No interest rate cut in September 2016

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Australian Economy, Uncategorized

 

In line with the expectation of the market, the Reserve Bank of Australia (RBA) held the rates steady at 1.5%, as per the monetary policy decision of September 06, 2016.

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Cash Rate (Source: Reserve Bank of Australia)

View on Global economic growth: The Governor, Glenn Stevens, stated that global economic growth is continuing at a lower than average rate while conditions have improved for some advanced economies in the past one year. Emerging market economies still feel the heat. Then the commodity prices have faced headwinds though the same are trying to stay above the recent lows.

Australia’s situation: Australia, particularly, has faced challenges with low inflation, lower term of trade against the previous years, large drop in business investment, mixed labour market scenario and so forth. Nonetheless, overall growth was said to be continuing with a boost from various areas of domestic demand and exports. The Governor has highlighted that the inflation would remain low for some more time. With the above backdrop, the low interest rates are said to get support from domestic demand and the lower exchange rate since 2013. However, appreciating exchange rate has been said to complicate the current economic situation. Further, dwelling prices overall have seen a surge in the last one year while growth in lending for housing purposes has been sluggish.

Given the above and the interest rate cuts in May and August meetings, the RBA held the rates steady in order to be consistent with sustainable growth in the economy. As per Bloomberg’s survey, only a minority of economists expect the RBA to cut the rate to 1.25% in November 2016. There are many who expect the cut to happen by the first quarter of 2017.

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