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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

With the Australian dollar pushing back above USD0.80 last week, the decision facing the Reserve Bank Board is an unusually close call.  Just last week, RBA Governor Glenn Stevens said the Australian dollar probably had further to fall adding that he has worried for two years that the dollar is not playing its part in helping to rebalance the economy by supporting exporters. The RBA Board meets on Tuesday to decide whether the economy needs another official cash rate cut, three months after its last rate cut, which took the official cash rate to a record low of 2.25%.

For our share market and the economy as a whole, the timing of any particular rate move is less important than the overall course of monetary policy. While Governor Stevens says further easing is “on the table”, the RBA has managed to wrong-foot economists at every meeting so far this year.

I sense that the market is craving some clarity around the RBA’s intentions rather than playing a month-by-month guessing game whether or not the Bank will ease further. If Peter Martin’s article in last Friday’s Fairfax press is right, the RBA Board will consider a recommendation to cut and approve the second reduction in the cash rate for this year. Financial futures markets and the Australian dollar have reacted to this press report and are currently showing a 62% chance of a rate cut this month, up from an indecisive 50% probability earlier last week. While economists last week were unanimously predicting a rate cut, a handful are now starting to believe the RBA will stay on hold.

Source: Rural Bank


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