Reserve Banl Interest Rate Update – August

Rates “surprisingly” on hold again

Much to the surprise of many, the reserve Bank chose to focus on developments in world markets and relatively less so on inflation concerns this week, as it concluded it was too soon to be raising rates again.

In its statement the bank said:

“The central scenario for the world economy over the next couple of years envisaged by most forecasters remains one of growth below the pace of 2010, but at or above long-term averages. Downside risks have increased, however, as concerns have grown over the outlook for the public finances of both Europe and the United States.”

And in conclusion, with reference to australia’s economy and the credit and housing market:

“It is appropriate under such circumstances for monetary policy to exert a degree of restraint. Most financial indicators suggest that it has been doing so, as a result of the Board’s decisions last year. Credit growth has declined over recent months and is very subdued by historical standards, even with evidence of greater willingness to lend. Most asset prices, including housing prices, have also softened over recent months. The exchange rate is high. Each of these variables is affected by other factors as well, but together they point to financial conditions being tighter than normal.”

Hence rate remain on hold.

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