RBA leaves interest rates on hold

The Australian dollar had traded between US70.93 cents and US71.13 before the announcement through the morning.

“There was an opportunity to highlight the continued decline in the terms of trade and expecting further Australian dollar adjustment, but the Board is still patient, and letting the market decide”. What most people were looking forward to is the RBA speech, particularly their language.

In contrast to November, when Stevens said that the exchange rate of the Australian dollar had adjusted to the fall in commodity prices, today he merely said that it had adjusted to the evolving economic outlook.

However, a cash rate cut is possible in the future, according to Flavell.

Seven of the survey respondents, or 24 per cent, believe another rate cut is on the horizon – including AMP Capital chief economist Shane Oliver. It came as a surprise to financial markets; Bank of Japan Governor Haruhiko Kuroda said he was vehemently against such a move only a week earlier.

The Reserve Bank of Australia (RBA) has left the official cash rate on hold at 2% at its first monetary policy board meeting for 2016.

The Bank of Japan stunned markets last week by cutting rates to less than zero, and the head of the European Central Bank has all but promised further stimulus steps by March.

This is the fourth consecutive week of easing, but CommSec economist Savanth Sebastian commented in a note that confidence still remains healthy with sentiment “essentially in-line with the two-year average”.

The RBA will release its quarterly Statement on Monetary Policy on Friday.

The post-meeting statement was slightly more dovish than we expected, although the initial market reaction suggests the market was looking for something more downbeat.

But they are only risks at the moment, as the RBA’s own assessment of the economy shows.

“This essentially reflects the balance of risks in the global and domestic economy, coupled with the RBA’s conditional easing bias”, Aird said.

Yet, the market turbulence, falling oil prices and the pressures on the emerging market economies undoubtedly have increased the risks of financial difficulties and affected business confidence around the world.

In other words, the economy is sticking to the script, for now at least, and as long as it does, there’s little chance of another rate cut. The unemployment rate has dropped from 6.3 per cent to 5.8 per cent, and while inflation is at the bottom of the RBA’s target band, it’s not low enough to worry the bank just now. It’s now sitting around US$41 a tonne, which is still above the US$39 level assumed by the Mid-Year Economic and Fiscal Outlook.