RBA: Interest Rate Cut Possible but Timing is Key
Reserve Bank of Australia (RBA) Deputy Governor Ric Battellino hinted on Tuesday that the Australian central bank may lower the cash rate. He said that the release on Wednesday by the Australian Bureau of Statistics of the consumer price index (CPI) would be a key for the RBA to determine easing monetary policy.
"Inflationary pressures, which had declined through 2010, appeared to pick up noticeably in the first half of 2011 and the prospects were that inflation would rise to above the target range of two to three per cent over the next couple of years," Mr Battellino said at an investment conference in Sydney.
"The downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope for monetary policy to be supportive of economic activity, if needed," he added.
Mr Battellino said he found the situation in Europe particularly disturbing because the authorities have yet to agree on policies that would deal simultaneously with excessive government debt, weak banking systems, economic slow down and differences in competitiveness among European nations.
"It remains to be seen how the Australian economy will respond to recent financial volatility and the consequent fall in confidence and the loss of wealth," the deputy governor said.
He added that even if it is possible that the global economy would turn for the worse, he expects reasonably benign environment for the Australian economy. Mr Battellino pointed out that there are no signs that recent market volatility would lead to a drastic fall in growth rates outside Europe, although he admitted it is too soon to conclude that it would not happen.
Economists forecast Australia's inflation rate would rise to 0.6 per cent in the September quarter and gave a range of 2.6 per cent to 3.5 per cent CPI on an annual basis.
The RBA is scheduled to meet on Nov. 1 to determine if it would change or retain the current 4.75 per cent cash rate which had been in place since November 2010.
