Australia will be receiving its third gold Olympic medal today, with sailors Nathan Outteridge and Iain Jensen only needing to complete the final race to secure the accolade. Although Australia isn’t quite where they would have hoped to be on the medal table when the Games began, they managed to bag two golds in two days and their tally is finally on the up. Australian interests rates, on the other hand, are set to stay the same.
According to a statement released from Sydney today The Reserve Bank of Australia kept interests rates at a developed world high of 3.5 per cent for a second month.
The 3.5 per cent retention was cited as being due to the global slowdown buffeting domestic expansion and is in line with the results of an AAP survey, in which all 15 of the economists participating predicted no rate movement. The RBA has not cut its cash rate since June when it dropped by quarter of a percentage point, following the previous months reduction of half a per cent.
With interest rate sensitive sectors of the Australian economy, such as housing, being bolstered by the previous cuts, only 2 of the 15 economists surveyed expect Australia to cut rates further in September.
Chief HSBC economist Paul Bloxham stated: ‘Given that growth momentum in the local economy is solid, we think the RBA is unlikely to cut rates again. Despite reports to the contrary, there is still significant support for growth to come from mining, both in the form of further investment and rising exports.’
Despite this confidence, all but one of the surveyed economists forecast a rate cut to occur before the close of 2012.
Following the 1.25 percentage point lowering of rates from November to June, RBA Governor Glenn Stevens asserted that borrowing costs had been left ‘a little below their medium-term averages’. He went on to say; ‘While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years. The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.’
Economist’s, like Katrina Ell of Moody’s Analytics, feel that the RBA has made the right decision in holding off further rate cuts: ‘Unless the volatile situation in Europe deteriorates further, the most prudent strategy for coming months is to hold tight and gauge the impact of earlier monetary stimulus on the domestic economy.’
China, Australia’s biggest trading partner, has reacted to the tumultuous European situation by lowering rates in May and June with the hope that it will protect their economy from the backlash.
Stevens also stated that: ‘The outlook for inflation is unchanged: it is expected to be consistent with the target over the next one to two years. Maintaining low inflation over the longer term will, however, require growth in domestic costs to continue their recent moderation as the effects of the earlier exchange rate appreciation wane.’
Stevens announcement ended positively with an assertion that for the nation ‘most indicators suggest growth close to trend overall. Labor market data show moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.’
Since the RBA’s last rate reduction, on June 5th, the Australian dollar has experienced gains of 8.6 per cent which has assisted the central bank’s efforts to maintain their lower end core inflation target of between 2 and 3 per cent.
Following the RBA announcement the Australian Dollar touched $1.0603, the highest level for almost five months.
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