ID :
16407
Wed, 08/20/2008 - 00:31
Auther :
Shortlink :
http://m.oananews.org//node/16407
The shortlink copeid
RBA hints at rate cut next month
The Reserve Bank of Australia (RBA) has hinted it will cut interest rates next month for the first time in seven years but concerns about near-term inflationary pressures are likely to limit the size of the easing, economists say.
The RBA board left official interest rates on hold at a 12-year high of 7.25 percent, on August 5, for the fifth month in a row.
The minutes of that RBA board meeting, indicate the central bank saw the case for anear-term rate cut to ward off a deeper economic slowdown.
The RBA predicted economic growth was likely to slow in the June and September quarters, and was conscious of tighter financial conditions that had pushed uplending rates.
Economists widely expect the RBA to cut interest rates when it meets on September 2,which would be the first cash rate easing since late 2001.
"Indeed, less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase," the RBA minutessaid.
"On these considerations, a case could be made for an early reduction in the cash rate." AMP Capital Investors chief economist Shane Oliver said the RBA board minutes confirmed market expectations of a September rate cut but suggested a 25 basis pointeasing rather than a 50 basis point cut.
"All they are really saying here is that if they don't move towards less restrictive conditions, the risk of a deeper or more persistent slowing of the economy wouldincrease," Dr Oliver said.
"They don't want that, which is an argument to cut rates, but by the same token the language is not strong enough to suggest they are heading towards a 50 basis point cut next month."The RBA said slowing demand made the case for a rate cut more compelling.
"Given the slower trend in demand, scope to move towards a less restrictive settingof monetary policy was judged to be increasing," the minutes said.
CommSec chief economist Craig James said the RBA believed that tight monetary policyposed the risk of inflicting serious damage to the economy.
"While board members didn't consider a rate cut at the August meeting, it's clearthat they wanted it on the agenda at the next meeting," he said.
The RBA said also that the outlook for demand was uncertain, with a rise in the terms of trade - the ratio of export to import prices - having the potential to addto national income and spending power.
The RBA was concerned also about high inflation feeding into wage pressures,although it had yet to see evidence of this.
The minutes were more bearish on economic growth, expecting the June quarter national accounts data, due in September, to show slow economic growth and a weakoutcome in the September quarter also possible.
Near-term inflationary pressures were still expected, with the RBA not expectinginflation to fall back into the two to three per cent target band until 2010.
The consumer price index (CPI) surged by 4.5 per cent in the year to June 30, and the RBA said in the August board minutes that headline inflation was likely to risein the near term.
"It was likely that the headline rate of inflation would rise further in the immediate future, but the softer demand outlook meant that inflation was still forecast to decline during 2009 and to be consistent with the target during 2010,"the minutes said.
Lehman Brothers chief economist Stephen Roberts said the minutes showed the RBA had shifted to an easing bias but was ambiguous on the timing and size of any interestrate move.
"The RBA board was clearly caught between the opposing policy needs of fighting high inflation and dealing with a growth slowdown with the potential to go too far," MrRoberts said.
Mr Roberts said the RBA was more likely to cut interest rates in November after theOctober 22 release of CPI data for the September quarter.
The RBA board left official interest rates on hold at a 12-year high of 7.25 percent, on August 5, for the fifth month in a row.
The minutes of that RBA board meeting, indicate the central bank saw the case for anear-term rate cut to ward off a deeper economic slowdown.
The RBA predicted economic growth was likely to slow in the June and September quarters, and was conscious of tighter financial conditions that had pushed uplending rates.
Economists widely expect the RBA to cut interest rates when it meets on September 2,which would be the first cash rate easing since late 2001.
"Indeed, less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase," the RBA minutessaid.
"On these considerations, a case could be made for an early reduction in the cash rate." AMP Capital Investors chief economist Shane Oliver said the RBA board minutes confirmed market expectations of a September rate cut but suggested a 25 basis pointeasing rather than a 50 basis point cut.
"All they are really saying here is that if they don't move towards less restrictive conditions, the risk of a deeper or more persistent slowing of the economy wouldincrease," Dr Oliver said.
"They don't want that, which is an argument to cut rates, but by the same token the language is not strong enough to suggest they are heading towards a 50 basis point cut next month."The RBA said slowing demand made the case for a rate cut more compelling.
"Given the slower trend in demand, scope to move towards a less restrictive settingof monetary policy was judged to be increasing," the minutes said.
CommSec chief economist Craig James said the RBA believed that tight monetary policyposed the risk of inflicting serious damage to the economy.
"While board members didn't consider a rate cut at the August meeting, it's clearthat they wanted it on the agenda at the next meeting," he said.
The RBA said also that the outlook for demand was uncertain, with a rise in the terms of trade - the ratio of export to import prices - having the potential to addto national income and spending power.
The RBA was concerned also about high inflation feeding into wage pressures,although it had yet to see evidence of this.
The minutes were more bearish on economic growth, expecting the June quarter national accounts data, due in September, to show slow economic growth and a weakoutcome in the September quarter also possible.
Near-term inflationary pressures were still expected, with the RBA not expectinginflation to fall back into the two to three per cent target band until 2010.
The consumer price index (CPI) surged by 4.5 per cent in the year to June 30, and the RBA said in the August board minutes that headline inflation was likely to risein the near term.
"It was likely that the headline rate of inflation would rise further in the immediate future, but the softer demand outlook meant that inflation was still forecast to decline during 2009 and to be consistent with the target during 2010,"the minutes said.
Lehman Brothers chief economist Stephen Roberts said the minutes showed the RBA had shifted to an easing bias but was ambiguous on the timing and size of any interestrate move.
"The RBA board was clearly caught between the opposing policy needs of fighting high inflation and dealing with a growth slowdown with the potential to go too far," MrRoberts said.
Mr Roberts said the RBA was more likely to cut interest rates in November after theOctober 22 release of CPI data for the September quarter.
