"Rate cuts are a thing of the past, largely thanks to the lower Aussie pushing up inflation and improving domestic demand. Our long-standing view is that rates will remain on hold until the second half of 2014, when gradual normalization will begin."
- Katrina Ell, an economist at Moody's Analytics
During the last half a year or so the RBA was constantly expressing their concerns about the strength of domestic currency that was weighing on economic recovery. However, it seems that a 5% depreciation during the last three months, convinced Australian policymakers the level appropriate to start sounding a little less dovish and refrain from additional easing.
On Friday, during the quarterly monetary policy statement the Reserve Bank of Australia revised its inflation and growth forecasts, reflecting a weaker currency. Currently, the RBA see the core inflation of 3% in the year ended June, compared with 2.5% expected three months ago, while inflation outlook for December 2014 now stands for a range between 2.25% and 3.25%. At the same time, they expressed uncertainty over what was the main price drive last quarter and pointed out the inflation is projected to be consistent with the official target.
Regarding the growth outlook, the Reserve Bank of Australia sees the GDP rising 2.75% this year to June and then fluctuate in a range between 2.25% and 3.25%. The last but not least, was the pledge to keep interest rates steady for some time, dropping the easing bias from earlier meetings amid higher-than-expected inflationary pressure.
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