RBA Board leaves cash rate unchanged at 4.75 percent

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Glenn Stevens, current Governor of the Reserve bank of Australia left a statement regarding the Board’s decision on monetary policy today. Just as many economic forecasters have predicted, RBA’s Board has kept the cash rate the same at 4.75 percent, a record spell since the last increase on November 2, 2010’s Melbourne Cup.

In the statement, Stevens said, “Conditions in global financial markets have continued to be very unsettled, with uncertainty increasing about both the prospects for resolution of the sovereign debt and banking problems in Europe, and the outlook for global economic growth.”

The uncertainty in the global market and financial unpredictability “have reduced confidence, which could result in more cautious behaviour by firms and households in major countries.”

Australia’s national income has increased considerably because of its very high terms of trade. The investment on service and resources sector is getting better and the government’s spending program has also decreased. The economy is expected to grow but not as early as expected due to factors outside and within, especially due to the global financial turmoil.

Inflation was also taken into account. Stevens said,” the path for inflation may now be more consistent with the 2–3 per cent target in 2012 and 2013.” The cash rate would come down if required. “An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary.”

RBA’s Board sees the unchanged cash rate appropriate. Australia’s financial conditions have slightly improved. Increased competition has made interest rates particularly fixed rates  for business and housing loans to decline not to mention the funding costs in financial markets which have gone down as well

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