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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities

The Reserve Bank of Australia left the official cash rate unchanged at 2.5% once again last week and there were few changes to the wording in the accompanying statement. Monetary policy remains “appropriately configured” and the RBA continues to envisage a “period of stability in interest rates”.

The elephant in the room is the absence of any reference by the RBA to monetary policy in the US. Some economists argue that the RBA’s period of interest rate stability will extend until the time the US Federal Reserve signals that it is close to raising rates. As a result, there may be no change in our official cash rate until mid-2015 at the earliest.

The big news last week however was the massive spike in the unemployment rate which set the cat amongst the pigeons and has clouded expectations on the direction and timing of any rate move by the RBA. Some commentators stressed “sample roll” as being the reason for the large rise in unemployment (uncommon but not unprecedented) which may be a valid argument and one reason why the monthly data should be treated with some caution.

In the end, economists have somewhat discounted this month’s data believing instead that the RBA will wait and see how this employment data emerges over the next few months. Expectations remain that the official cash rate will remain unchanged at 2.50%for the remainder of 2014 and most of 2015.

Source: Rural Bank


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