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RBA keeps rates on hold, signals furture rate cut possibility

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - The Australia Central Bank today left its rates unchanged at 2.0 per cent today and signaled the possibility of further rate cuts amid weak global economic outlook. Economic growth in China which is Australia’s major trading partner has slowed down considerably. Annual China GDP hit a 25 year low in 2015. Other emerging economies have also shown signs of slowdown. In the wake of fall in commodity prices, Australia’s terms of trade has continued to decline.

    Australia is in the process of rebalancing its economy away from the resource sector. The government’s initiatives paved the way for expansion in the non-mining sectors in 2015 while the spending in mining investment continued to drop. Surveys to assess business conditions showed an improvement above average levels.

    Also, employment report in recent times has shown strengthening of the labor market. Unemployment rate declined in the second half of 2015 which goes on to prove that loss of jobs in the mining sector has been made up for by hiring in other sectors. The pace of lending to businesses is also noted to have grown.

    Inflation however continues to remain low. The CPI rose by 1.7 per cent over 2015 while underlying measures of inflation have stayed at about 2 per cent. The slump in commodity prices particularly oil has kept prices in check. Oil can be expected to remain low for some time now and this in turn will restrict inflation in most developed countries of the world. Also, labour costs has not grown as much as the central bank would have liked. Considering these factors analysts believe that consumer price inflation will likely continue to remain below the

    RBA’s target for the next two years.
    Beginning 2016, volatility in markets have grown all over again with investors jittery and apprehensive about the health of the global economy. Monetary policy makers are grappling with rate decisions and their decisions are being closely watched by markets as they wish to see an increase in liquidity . risk appetite everywhere has suffered a blow. The existent situation has led to drop in funding for emerging market sovereigns as well as lesser-rated corporates.

    Monetary policy in all large economies are extremely accommodative at the moment. The RBA too walked on the same lines keeping their interest rate low at 2 per cent and signaling that their accomodative policy can be expected to continue. The RBA Board is aware that low interest rate is helping to generate demand. On the other hand regulatory measures are highlighting feasible lending standards so as to diminish risks in the housing market. House prices has moderated in Melbourne and Sydney over recent months and has mostly stayed subdued in other cities. Also, the RBA has adjusted the exchange rate in tune with evolving global outlook.

    The Board is confident that the economy will continue to grow at a reasonable pace in the coming quarters. It thus decided deemed its current setting of monetary policy remained to be appropriate. However, the central bank has stressed that it will continue to monitor the financial markets and the global economic outlook to realise the threat it posed to the Australian economy. It will also examine the labor market conditions and inflation figures. The RBA has signaled low inflation will possibly provide scope for further easing.
    The RBA’s decision to keep rates unchanged has upset some investors were disappointed who had believed that slump in oil prices and concerns over China’s slowdown would prompt the central bank to give out clear signals with respect to the timing of a probable next rate cut. Westpac chief economist Bill Evans is of the opinion that today’s decision is an indication that the RBA will keep rates on hold throughout 2016.

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