RBA Rates Announcement July 2012
It was unlikely that the RBA Board would cut rates again today. The minutes of the June meeting outlined that the decision to ease policy by 25 basis points last month was “finely balanced” and suggested that rates could easily have been left on hold at the last meeting.
On the basis of the domestic data the Board considered that there had been no “significant weakening in conditions” relative to the May meeting and there had still not been enough time to gauge the impact of the 100 basis points of easing delivered since the end of last year.
With the decision to cut rates in June “finely balanced” there was considerable doubt about the likelihood of additional easing in monetary policy without a further deterioration in the outlook for global growth or financial stability.
The Futures markets priced a 25 basis point cut in July as an outside chance at around 20 per cent, albeit it has almost fully priced in a move in August which will follow the release of the June quarter inflation data.
European developments remain pivotal for interest rate expectations and will likely be determinative of when, or if, the RBA eases monetary policy in the near future.
CCIQ did not anticipate a change in the official interest rate today. Both global and national economic data across the last month has not create a compelling case for a further reduction.
The RBA is not anticipated to change rates until at least August following the release of the June Quarter CPI in late July.
Whilst CCIQ is generally at present erring on the side of a rate reduction given that many businesses continue to struggle, it is prudent for the RBA to leave room to manoeuvre should economic conditions further deteriorate in the future.