The RBA Keeps Rates the Same this Time

Just a short while ago, the Reserve Bank of Australia (RBA) held off with any more monetary easing. This was a bit of a surprise as we expected another rate cut to follow last month’s surprise slash.

The RBA elected to keep rates at their record low of 2.25percent. There were expectations they would do more to fight weak employment, stagnating inflation and weak corporate profits. Last month the RBA cut rates by 25 basis points. This was its first rate cut in 18 months and after some 20 global central banks have loosened monetary policy. Over the weekend the People’s Bank of China (PBOC) surprised markets when they lowered rates, its third aggressive move within the last five months to stimulate their slowing economy.

In a statement after the move, the RBA said that is “appropriate” not to make any further monetary moves but left the door open for future easing. The bank see growth continuing at a slow pace and weakened domestic demand. Even though we expected a move today, there is reason to be prepared for one or maybe more moves to be made this year. They are waiting to see the full effects of last month’s unplanned rate cut and there has been some minor improvements in their economy.

The labor market, since the rate cut, has weakened further. Private capital expenditures have fallen sharply and manufacturing activity has contracted sharply. In fact it has contracted at its fastest pace since July 2013. We have seen some improvements. Retail sales, home loans, business confidence, trade, consumer confidence and construction have all improved since the last rate cut.

After the rate decision, the AUD/USD jumped up 0.50 cents to 0.7835. The Australian stock index, the S&P ASX 200 fell 0.3 percent.