The Reserve Bank of Australia has not cut rates at its monthly meeting, despite the avalanche of dire economic news from overseas.
It appears the RBA feels it has done enough to stimulate the economy for the time being.
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“The Australian financial system remains strong and the monetary policy transmission process is working to deliver large reductions in interest rates to end borrowers. Nonetheless, economic conditions are clearly weak, and given the speed and scale of the global economic deterioration and its affect on confidence, weak conditions are likely to continue in the near term. Inflation is likely to decline over time,” the bank said in a statement.
“Together with the substantial fiscal initiatives, the cumulative decline in interest rates will provide significant support to domestic demand over the period ahead. On this basis, notwithstanding evident economic weakness at present, the board judged that the stance of monetary policy was appropriate for the moment.”
The decision has taken most economists by surprise – most expected a cut because of concerns about the international economy. Yesterday, Federal Treasurer Wayne Swan declared that seven of Australia’s 10 major trading partners are now in recession and that GDP growth in the fourth quarter was likely to be negative.
The RBA has made cuts totalling 400 basis points since September, bringing the official interest rate to a low of 3.25%.