When the Reserve Bank met earlier today, the board decided to leave the official cash rate at 3.25%. While there weren’t very many positive indicators in the statement by Reserve Bank Chairman Glenn Stevens, there was some indication that various areas of the economy stabilising.
There is still concern regarding the situation in Europe and the Chinese expansion moderating. “The terms of trade have declined by about 13% since the peak last year but are likely to remain historically high”.
Financial markets are making some progress although there is a long way to go yet and capital market are doing ok and “Australian banks have had no difficulty accessing funding”.
Growth is running close to trend although the mining sector will need to be watched as the capital spending is likely to peak sometime next year at a lower than expected level and may affect other components of demand.
Consumption is showing signs of growth and investment in dwelling continues to be subdued although there are some signs of improvement. Public spending is also likely to be subdued as the government desperately tries to get the budget into surplus.
Inflation was slightly higher than expected although “consistent with the medium term target, with underlying measures around the 2 ½% over the year to September and headline CPI inflation a little lower than that” The carbon price is showing some effect to consumer prices although the impact won’t be fully apparent for a while yet and the labour market has softened with unemployment edging up.
All in all, there’s been a little improvement in Australia and in other major countries and the reserve bank is probably going to sit on its hands for a month or two and see what plays out in the run up to Christmas. Personally, I think it’s the right decision, interest rates are historically well below the average and it’s nice to know there’s still some dry powder if one of the economies which are still in some trouble take a turn for the worst.
I hope you did well in the Melbourne cup today, I know the bookies did!
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