Internet Banking

News

Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities

The highlight last week was the clear shift by the Reserve Bank of Australia (RBA) in moving to a neutral bias after their monthly Board meeting. The two big changes in the statement were the removal of reference to an “uncomfortably high” Australian dollar and the now neutral monetary policy stance, with their statement concluding that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.

The key message in last Friday’s Statement on Monetary Policy was not the small upward revisions to the economic growth forecasts by the RBA, but rather that it now felt more confident about the prospects for a gradual return to trend growth which it has been forecasting for some time. This suggests that the RBA is likely to keep cash rates on hold over the course of this year.

The gentle shift in language effectively gives the RBA time to pre-position the market for an end to the rate cutting cycle. Although the market will take this as a cue for pricing-in the next hike. Financial markets have moved rate expectations accordingly and unwound any prospect of rate cuts or rises for several months (refer chart below).

graph

Whilst the market is likely to get the direction right, I suspect their timing may be too aggressive.

Source: www.ruralbank.com.au

 

Disclaimer: Whilst all care has been taken in compiling the information, the information should not be relied upon as substitute for professional advice where necessary. Rural Bank Limited accepts no responsibility for the accuracy, completeness or timeliness of the information and disclaims all liability in relation to any loss or damage suffered by the use of or reliance upon any information contained herein or in any attachment or annexure hereto by any person. Rural Bank Limited ABN 74 083 938 416 AFSL 238042.