By Greg Peel

“The recent disaster in Japan will have a noticeable effect on Japanese production in the near term, although the impact on the broader Asian region is expected to be limited”.

That was it – that was the RBA's entire summation of the world events occurring between the release of the previous monetary policy statement on March 1 and today's release, and their impact on Australian monetary policy. There was no mention of MENA or of ongoing European debt issues, and Japan was dismissed as quickly as appears above. This is not to suggest the RBA is oblivious, or indifferent, it just means the central bank sees no impact to be particularly concerned about.

The rest of the statement was as good as a carbon copy of the March statement, which in itself was largely a repeat of February. The only real addition was a nod to flooded mines as well as flooded towns having a short term impact on production. And employment growth was seen to be moderating as previously expected.

(Today's release of the February trade balance notably showed a slight deficit – the first deficit after a 10-month run of surpluses. Weather related production and transportation delays in the resource sector were largely to blame. Economists expect a weak March quarter GDP, with Westpac for one now forecasting a 0.2% contraction. There is nevertheless no fear of anything more than a temporary set-back.)

Beyond that, the record trade balance is driving national income but an increased savings rate among households is providing an offsetting effect. The Aussie is also acting as a dampener on inflation and the recent jump in food prices due to the weather factor is only temporary. Inflation should remain within the RBA's target band for the foreseeable future, and hence there is no need to alter policy at this time.

And so the RBA left the exchange rate at 4.75% and will likely do so again in May.

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