Tuesday, December 4, 2012

RBA's remains hawkish after the rate cut (and who renamed the central bank?)

The Reserve Bank of Australia continues to surprise with their hawkish stance. In spite of lowering the benchmark rate to 3%, the RBA made comments suggesting that they are going into a holding pattern for a while. Since the RBA has never gone below 3%, it seems to represent something of a "support level".

Source: Tradingeconomics

The Australian: - "People are speculating we are nearing the end of the easing cycle," said Matthew Johnson, a UBS interest rate strategist.

"The Reserve Bank is uncomfortable about further cuts and will only make them if they absolutely have to."

UBS chief economist Scott Haslem said: "If the non-mining sector continues to improve, as we expect, this should allow the RBA to stay on hold from here, and possibly for an extended period."
It's a brave thing to do for a central bank that is facing "currency wars", particularly by its competitors (see discussion). The Australian dollar has experienced a massive appreciation relative to the Brazilian real for example, making it difficult for Australia's exporters to compete. This is especially tough when global demand for natural resources remains weak.

AUD/BRL (source: Forexpros)

Businesses are calling for the central bank to weaken the currency and will not be happy with the RBA in a holding pattern.

To cheer up our friends down under, here is an article about RBA's rate policy published on NASDAQ's website about a month ago. When was the central bank renamed?

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