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Weekly Economic Commentary

Weekly Economic Commentary

Categories: Commodities, Weather, General

Since early August, when the Reserve Bank of Australia (RBA) cut the official cash rate to a record low of 2.50%, financial markets have gradually unwound expectations of further rate cuts. This has seen futures markets defer the next (and possibly the last) RBA cash rate cut to early next year (previously the next cut was forecast in November). At the same time, longer term yields have risen.

A lot of this recent move has to do with the current talk of the US Federal Reserve winding back their stimulus (bond buying) program as soon as next month. As a result, US Treasury yields have risen considerably, equity markets are lower and the US Dollar has strengthened, which has affected our markets. As an example, the Australian 3-year swap rate has risen 40 basis points in 2 weeks.

Within the August RBA Board Minutes released last week, the “Considerations for Monetary Policy” section noted that the Board wanted to emphasise that the RBA should not “close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further”. In other words, the inflation and growth outlook keeps the door open to more monetary policy easing, but only if it’s subsequently needed.

For now, the RBA seems content to see how the economy responds to policy, the election and what the currency does post the US Fed’s proposed tapering program. For now though, there continues to be an easing bias.

Source: www.ruralbank.com.au

 

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