Cash Rate Kept Steady at 4.75 per cent by RBA
The cash rate has been kept steady at 4.75 per cent by the Reserve Bank of Australia (RBA) during its regular monthly board meeting.
This decision was expected by almost all of the thirteen economists who were surveyed last week by AAP. Twelve of the thirteen economists predicted that the rates will be kept steady.
Recent economic data showed the effects of production losses due to floods and cyclone Yasi. This is according to Glenn Stevens who is the RBA governor.
“Looking through these short-term movements, however, the recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course,” Mr. Stevens said.
He also added that “while the rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.”
In a short statement by RBA, there was a change in the way it talked about inflation. This is noted by National Australia Bank
(NAB) senior economist, Spiros Papadapoulos.
He also added that “Last month they said inflation over the year ahead would be consistent with the 2 to 3 per cent target, they are now saying inflation would be close to target over the year ahead.”
Papadapoulos also said that RBA is trying to say that it is now seeing inflation rising above 3 per cent over the next 12 months.
On the other hand, Adam Carr who is ICAP’s senior economist believes that inflation is picking up as suggested by Central Bank’s failure to come to grips with recent economic data.
Mr. Carr said that “It’s as if they hadn’t seen the last CPI (consumer price index) numbers and they haven’t quite processed the recent data flow.”
“The labour market has been strong – they’re playing that down. CPI has spiked up – they’re playing that down,” Mr Carr said.
“This is reflecting an organization which has been caught unawares. They’ve misread the economy and now they’re just processing that,” he also added.
According to Paul Bloxham, HSBC chief economist, RBA was clearly less comfortable with the inflationary outlook this month.
Mr. Bloxham is expecting that the central bank will raise the cash rate in July or August by 5 per cent.
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Source : http://www.news.com.au/money/interest-rates/rba-keeps-rates-on-hold/story-e6frfmn0-1226049187404
