In their April 2012 meeting the Reserve Bank of Australia (RBA) decided to leave the official interest rate unchanged at 4.25%.
In making their announcement the RBA seems to be taking a standing from an external viewpoint by citing the world stable albeit with lower than trend growth.
They also seem to be ignoring recent poor economic data in Australia, including soft retail figures, by following a belief that Australia is doing well with growth and inflation in their target zones. The last time they held this stance in mid 2011, their insistence on a high rate policy dampened the economy to the point where it required two rate cuts in November and December 2011 to stimulate activity once again.
This seems to have done little to create momentum, rather it has stopped the situation worsening. A further rate cut could be soon coming in order to try and kick start a frustrated economy where consumers have lost confidence and are choosing to save rather than spend.
This was further complicated by the Australian banks deciding to lift their interest rates due to higher cost of funds last month despite the RBA leaving them unchanged. A generous act for the RBA would have been to pass on a reduciton to compensate for this, but that would be asking for too much from the RBA, who have proven themselves to prefer a higher rate policy than a lower.
The Australian Dollar remains high, although off its recent highs, and we may see a rate reduction get priced in very soon by the currency markets.
Click here to read the full RBA Announcement
