RBA moves to neutral, no fresh cuts ahead

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"They've shifted very firmly to a neutral bias. The fact they've taken out the reference to the uncomfortably high Australian dollar also tells you that they're clearly pleased with what the currency's done over the past couple of months."
- Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada 

Unexpected. This is how we can characterise RBA's February's meeting. Though it was unlikely that Australian policymakers would cut the key refinancing rate this month, they were projected to signal future cuts and stay dovish, as economy struggles to gain momentum. Nevertheless, everything changed. Following the RBA's meeting AUD/USD soared 1.65% to 0.8898 and after receiving a strong bullish impetus, the pair managed to hit 0.8913. 

Governor Glenn Stevens and his team decided to maintain the benchmark interest rate at 2.5%, meeting the consensus forecast. After 2.25% of rate adjustment since late 2011, the RBA is now switching to a "neutral" mode, as rising home prices and stronger inflationary pressures are expected to boost growth. Moreover, Stevens expressed his confidence in domestic private and corporate demand, saying the growth will accelerate in the foreseeable future on the back of record-low rates and weaker currency. Taking into account inflation picked up to 2.7% in the final quarter, accelerating from 2.3% a quarter earlier, the RBA is now expected to stay pat on its monetary policy until early 2015. At the same time, some economists have expressed their concerns that there will be one more rate cut, dependent on how economic indicators play out over the coming months. 


© Dukascopy Bank SA

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