RBA Undecided On Further Interest Rate Hikes

The Australian central bank has signalled that interest rates may be held steady over the next few months, if inflation data which is to be released next week is in line with forecasts.

“The important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation,” Australia’s Reserve Bank said in the minutes of its policy meeting of July 6, when it left rates unchanged.

The Reserve Bank of Australia (RBA) believes that the latest inflation data which is due to be released next Wednesday is likely to exhibit further moderation, but the RBA remains hawkish due to the fact that it expects the inflation rate was likely to remain at the upper end of its preferred 2-3 per cent target range.

The central bank at its most recent policy meeting held on July 6th left interest rates unchanged at 4.5 per cent, which was the second consecutive month of leaving them unchanged, after six consecutive rate hikes between October 2009 and May 2010.

The central bank cited previous hefty rate hikes had “afforded flexibility to maintain steady settings in the face of increased international uncertainty”.

The RBA increasingly appears to be in a quandary over the direction of monetary policy, as volatile financial markets make a strong case against further monetary tightening, whilst the Australian economies continues to appear robust, commodity prices are strong, and spare capacity is scarce.

The board minutes said some recent moderation in Asian growth was desirable but there is likely to be some uncertainty in the near term about the extent of the cooling.

The prospect for Australia’s largest trading partner is largely centred around growth for the next few years the RBA said, whilst the labour market continues to maintain its strength, though according to the central bank, according to its data, the housing market has cooled.

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