By Greg Peel

"Oops."

It is assumed by economists that this is what we would have heard from the RBA board members after the release of the Australian March quarter GDP result, having just added another 25 basis points of cut last month to the previous 50. To be fair to the RBA, however, no one correctly predicted surprisingly strong economic growth.

Furthermore, it is very difficult for the central bank to balance the so-called "two-speed economy" with only one interest rate. The RBA had been criticised after the May 50 point cut for not having acted sooner in the face of clear slowing in the non-mining economy, and one presumes the easing off of commodity prices and Big Miner spending intentions were enough to provide some breathing space in terms of inflation expectations. Then throw in Europe and its ever-building risk, and the 50 point cut seemed a bit of a late catch-up. Risks were confirmed with the 25 point June cut, and then and lo and behold it turns out the Australian economy is actually looking good.

So poor old Glenn Stevens has now copped accusations of having overreacted. It doesn't help that the EU leaders have since seemed to have woken up to the gravity of the situation and (again quite surprisingly) decided to do something actually useful in rescuing European banks. Although I'm sure Glenn would have welcomed this development as a chance to sleep for once. Never wishing to be too coy, Stevens has admitted the Australian GDP mis-read in the July statement, released today:

"In Australia, recent data suggest that the economy continued to grow in the first part of 2012, at a pace somewhat stronger than had been earlier indicated. Labour market conditions also firmed a little, notwithstanding job shedding in some industries; the rate of unemployment remains low."

Therein lies sufficient reason not to cut again, just yet, but we also have the development in Europe:

"Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs..."

But let no one be in doubt that:

"...Europe will remain a potential source of adverse shocks for some time."

Aside from these new additions, the July statement basically repeats the June statement in its summation of a slowing global economy, a subdued local housing market and modest business credit demand. So because we've already had 75 recent point of cuts, the RBA decided:

"As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months. At today's meeting, the Board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate."

There are no signs here about August or beyond, so one presumes we're back to watching the data and the developments offshore. Volatility continues to rule the day so while inflation remains under control in Australia and is no threat, the RBA still has plenty of room to move if it really has to. It might be nice for mortgage-holders to go again but it's not nice for depositors and other yield-chasers. And even mortgage holders will not want to contemplate what might force the central bank into further emergency-style cuts.

Read the full statement here.