Australian Reserve Bank Interest rate watch – June 2012

At its June 5 meeting Australia’s central bank, the Reserve Bank, decided to cut the cash rate by 0.25% to 3.5%.

As a comparison, the BoE (Bank of England) rate today is 0.5%.

Observations from the Reserve Bank announcement include the fact no new inflation data was considered in concluding the decision to cut rates. The bank reaffirmed its comments last month about a lower-inflation outlook over the coming 1-2 years.

Comments about the Australian economy were mixed, noting some growth in early 2012, albeit mixed amongst industries and the observation of a ‘precautionary approach’ by households and businesses. Business credit growth was strong, although overall credit growth was modest, and employment numbers are still quite stable.

This time, and also as part of the explanation of the rate cut in May, the bank’s major rationale for a rate cut was based on the state of world affairs, noting the increased potential for adverse shocks from Europe, and a deterioration in sentiment amongst financial markets. It also noted the prospects for world economic growth recently have been stymied by weakened growth expectations in China and Europe. The US continued to grow steadily.

The bank mentioned interest rates are below medium term averages but made no reference to lender’s borrowing costs or spreads.


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