RBA July Minutes Hint Delays on Cash Rate Cutbacks
Major economic indicators showed that the country's current cash rate of 3.5 per cent will hold in the aftermath of the Reserve Bank of Australia's (RBA) board meet in August.
"With recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting," said the RBA July meeting minutes released on Tuesday.
Analysts took the declaration as the central bank's likely rate policies in the few months ahead, sustaining its decision earlier this month to freeze the country's borrowing cost following the reduction of 125 basis points since November 2011.
But Westpac chief economist Bill Evans told ABC News on Tuesday that the RBA will definitely further push back on the official rate, probably two more times, before 2012 comes to an end.
The policymakers' present disposition only delayed what Mr Evans described as inevitable intervention from the RBA, largely due to the uncertainties signalled by the U.S. economy and the general volatility in Europe.
The cooling down of China's economy, presently Australia's biggest trading partner, will also be factored in on future RBA moves, analysts said, despite the overall healthy state of the local settings.
"We remain of the view that the overnight cash rate will eventually come down by 75 basis points to a low of 2.75 per cent," Mr Evans said.
But instead of the cuts happening soon, the relief will have to wait until the last quarter of the year with the RBA probably spreading the reduction in two installments between October and December, the Westpac analyst added.
The closing year cuts were understood to be anchored on RBA's observation that "consumption was being supported by a favourable labour market and recent liaison had a firmer tone."
Such view was referenced on Australia's current jobless rate of 5.2 per cent, which was far better than what were seen in the United States and much of Europe.
It appears too that even as the Australian dollar remains high, largely supported by a mining investment pipeline of about $500 billon basing on government data, the retail sector has been gaining considerable traction, indicating that local shoppers were starting to spend more.
Economists said positive effects of the RBA policy since 2011 have started trickling in as shown by the 4.3 per cent growth in the country's gross domestic product (GDP) as of the first quarter of the current year.
While the GDP uptick can mostly be attributed to the ongoing mining boom, the good impact was eventually rubbed on Aussie consumers, which the government said were more disposed to hit the stores when compared to their mood five months ago.
And the level of savings among households continue to grow, the latest RBA minutes said, boosting the amount of cash available to local lenders, consequently limiting their reliance on unpredictable funding from abroad.
More than 50 per cent of financing required by Australian banks were now sourced from deposits, the RBA said, making it less necessary for them to put up defence postures and deviate from the official interest rate promulgated monthly by the Reserve Bank.
In fact, The Age reported that majority of banks, including the big ones, responded positively with the June cut rolled out by the RBA, which they matched with an average 20 basis points shavings of their standard variable mortgage rates.
The almost unison cutbacks represented loan rates that were lower by 60 basis points when compared to levels seen 16 years ago, the Fairfax publication said.