RBA to keep rates steady amid uncertainty

Australia’s central bank kept its cash rate steady at 1.75 percent, a widely expected decision given political uncertainty at home and overseas and a lack of up to date information on domestic inflation.

With the decision highly expected, attention quickly turned to the press release for further information.

The Australian dollar inched lower on Tuesday as investors awaited a monetary policy decision later in the session, while major currencies continued to tread water with US markets shut on Monday for Independence Day.

While in its June statement, the RBA had pointed out that unchanged rates were in line with sustainable growth and a return of inflation to target, it now sounds more open-minded about further easing measures.

Mr Joiner said that with central banks in Europe and the United Kingdom likely to announce further stimulus measures, and rates on hold in the U.S., “it adds to the narrative that the Reserve Bank will need to cut interest rates at some point”. In turn, this is view might have been seen as consistent with the way the RBA’s outlook is perceived by the market, which may help to explain the overall limited price action following the decision.

Whether this was meant to clarify that the rise in house prices would not hold back the RBA from cutting rates or that it was highlighting a potential obstacle to cutting rates is not easy to tell.

Brexit has ramped up the urgency for some Asian central banks to ease monetary policy, as a prolonged period of uncertainty threatens a wider downshift in trade and investment. Rather it seems to have been the result of very subdued labour costs and weak cost pressures in the rest of the world.

“A cash rate cut could still come by the traditionally busy spring [property] selling season if market conditions did not resume promptly”, said Mr Harrod.

Sebastian said CommSec expects the Reserve to cut rates next month. Another report showed that trade deficit widened to 2.218 billion Australian dollars in May compared to 1.785 billion Australian dollars previously. “Several advanced economies have recorded improved conditions over the past year but conditions have become more hard for a number of emerging market economies”.