Monday, 4 February 2013

Interest rates on hold despite signs of softening economy

The Reserve Bank has adopted a ‘wait and see approach‘, leaving interest rates on hold at its first board meeting of the year.

The decision to leave the official cash rate at three per cent takes into account weaker-than-expected building approvals for December, the continuing fall in job advertisements, while inflation remained subdued in January.

The TD Securities – Melbourne Institute Monthly Inflation Gauge rose by 0.3 per cent in January.
Contributing to the overall change were price rises for utilities, urban transport fares and education, mainly due to seasonal factors. These were offset by falls in holiday travel and accommodation, clothing and footwear, and furniture and furnishings.  While the price of fruit and vegetables only rose by 1.2 per cent last month.

Meantime, the strong Australian dollar has allowed numerous goods and services to be imported at discount prices, although this impact is likely to fade as the year unfolds and the Australian dollar stabilises.

The cash rate has been lowered by 125 basis points over the past 12 months. It’s thought more time is needed to measure the effect of this monetary easing, which will be more clear come the March meeting.

For the RBA’s full decision visit