Up isn’t always the way
(18 February 2010 – Australia) The decision made by Australia’s Monetary Policy Committee to keep interest rates unchanged earlier this month doesn’t necessarily mean a hike is imminent at the next meeting of policy powers.
The minutes indicated that if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary. But they did not regard that outlook as requiring an increase at every meeting.
In considering the level of interest rates, the board noted that the three increases in the cash rate late in 2009, together with the widening in the margins between the cash rate and many lending rates, had meant a material adjustment to the stance of monetary policy.
Members judged that monetary conditions were no longer exceptionally accommodative, though the structure of interest rates was still somewhat below average.
The members also said inflation currently fell within RBA targets and would likely remain so.
Several surveys of analysts had pointed to expectations for a quarter-point rate hike to the 3.75 percent policy rate in February.
The RBA said policy makers were aware of this, but that they concluded the stronger case was to hold steady and instead offer a communication that, if economic conditions evolved broadly as expected, further adjustments to policy would probably be needed over time to ensure that inflation remained consistent with the target over the medium term.
In considering the level of interest rates, the board noted that the three increases in the cash rate late in 2009, together with the widening in the margins between the cash rate and many lending rates, had meant a material adjustment to the stance of monetary policy.
Members judged that monetary conditions were no longer exceptionally accommodative, though the structure of interest rates was still somewhat below average.
The members also said inflation currently fell within RBA targets and would likely remain so.
Several surveys of analysts had pointed to expectations for a quarter-point rate hike to the 3.75 percent policy rate in February.
The RBA said policy makers were aware of this, but that they concluded the stronger case was to hold steady and instead offer a communication that, if economic conditions evolved broadly as expected, further adjustments to policy would probably be needed over time to ensure that inflation remained consistent with the target over the medium term.
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