- Glenn Stevens, RBA Governor
The Reserve Bank of Australia decided to maintain the official cash rate unchanged for the eight consecutive month, and remained sanguine about the domestic economy, with inflation close to the target. Despite the improvement in domestic data, markets are pricing in a high chance of further easing this year, with a rate cut to 1.75% by September already fully priced in. Nevertheless, the central bank kept a clear easing bias amid continued low inflation, which provides scope for easier policy, and expressed concerns about recent market volatility. Underlying inflation continued to hover near the lower end of the central bank's 2%-3% target band in the final quarter of 2015, while headline inflation rose to 1.7%, up from 1.5%.
The RBA last moved in May 2015, when it slashed the key interest rate by 25 basis points to the historic low. For now, the central bank will remain in a wait-and-see mode and continue to monitor effects of recent global financial markets turmoil and a slowdown in China on the Australian economy. Unlike statements last year, the RBA did not mention its concern about the current level of the Australian Dollar, just saying "the exchange rate has continued its adjustment to the evolving economic outlook". Since the RBA's last policy meeting in December, the Aussie Dollar has lost 2.8% versus the US counterpart and is down 2.6% on a TWI basis.
© Dukascopy Bank SA