- August 18, 2010
- Posted by: admin
- Category: Finance News
The RBA board says the current cash rate is “still appropriate… pending further information.”
Aside from the usual monthly raft of economic data, the next crucial piece of information will be the official inflation figures for the September quarter, released in late October.
The bank decided to keep rates on hold in August following the release of June quarter inflation data that met its expectations, but was below most market economist forecasts.
“The major news in the domestic economy had been that underlying inflation had continued to fall, in line with the bank’s expectations, and was now below 3 per cent,” the board minutes noted.
The minutes therefore seem to support most market economists’ views that the official cash rate will remain on hold until at least November.
While the bank is still concerned about the pressure the commodities boom is putting on the economy and prices, the bank also says increasingly frugal households have offset much of this impact.
The bank says surveys have suggested a change in households’ financial behaviour, with greater caution about spending and borrowing.
Moreover, they see this change in attitude as a positive if it is sustained.
“The household saving rate was at a higher level than a few years earlier, and credit growth was much lower than over the past decade,” the minutes recorded.
“The challenges of dealing with a terms of trade boom and strong growth in investment would be lessened if these trends in household behaviour continued.”
In plain English the bank is telling households, ‘don’t go borrowing more for a pre-Christmas spending spree, and don’t go speculating on housing, and we may be able to keep rates on hold a bit longer.’
That said, barring a dramatic change in the global or local financial outlook, the RBA still clearly expects its next move in rates to be up, not down.
If household spending and the property market do remain subdued, then a ‘bit longer’ may extend as far as late 2011 or early 2012, when the bank expects underlying inflation to again hit the upper bounds of its 2 to 3 per cent target range.
But if households take advantage of the current rates stability to borrow more money to buy goods, services and houses, then the bank may feel the need to lift rates much earlier.
However, it repeated a shot at the retail banks, again saying that bank interest margins remained above pre-crisis levels, undermining the case for the big four to make any rate moves independent of the RBA.
SOURCE: ABC News