RBA Lowers cash rate 25 BP

Rickardo

Rickardo

From the RBA Site.. Interested to see when and by how much the banks move?

Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.75 per cent, effective 8 May 2013.

The global economy is likely to record growth a little below trend this year, before picking up next year. Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession. Commodity prices have moderated a little in recent months though they remain high by historical standards.

Financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low.

Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013. Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low.

With the peak in the level of resources sector investment likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years. There has been a strengthening in consumption and a modest firming in dwelling investment, and prospects are for some increase in business investment outside the resources sector over the next year. Exports of raw materials are increasing as increased capacity comes on stream. These developments, some of which have been assisted by the reductions in interest rates that began 18 months ago, will all be helpful in sustaining growth.

Recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected. The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving. This should help to lessen increases in prices for non-tradables. The Bank's forecast remains that inflation over the next one to two years will be consistent with the target.

Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.

The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued.

The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.
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And they leave themselves open for further cuts:

RBA said:
At today's meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.
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Great news for borrowers and investment asset holders. A surprise cut and a signal of potentially more to come. Bring on 5 years fixed rates at sub-5%!! :)

Cheers,
Michael
 
Well that was a surprise! Talk on the town was for no move at all.
It could be very interesting for the Perth market - could put it into warp speed.
I want to get into Melbourne before it picks up much more.
 
Very supprising, but hard to say what the banks will do. I've heard talk (from within the banks) that there's room for them to pass it on in full, but it's very hard to say.

I'll tip most lenders passing on 0.20% at this point, but I'm probably wrong because I didn't expect the RBA to drop at this point either.
 
Very surprising.

I too thought they'd hold out for at least another couple of months.

Could be the catalyst we need to see some heat in some of these markets.....

C'mon equity...go you good thing!
 
JT7 said:
lol...I guess that's why I'm not on seven figures working for one of the big banks....doh :D
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The dopes who work at the big banks were the ones predicting no rate rise. However, those smarty pants who are paid even more and earn 8 figures are those who predict it and the bond markets show it.
 
Here's a very good take on the decision by Michael Pascoe today:

http://www.smh.com.au/business/rba-a-surprise-but-not-a-shock-20130507-2j58n.html

Michael Pascoe said:
What’s broadly missed is that a federal deficit of, say, $15 billion this year (to use AMP’s guesstimate) is still an extraordinary tightening of fiscal policy. As AMP’s Shane Oliver has put it:

“Moreover it should be borne in mind that the budget deficit will still be well down from last year’s $44bn and the turnaround in the budget deficit from 3% of GDP to around 1% this year will still be the fastest turnaround on record (since 1980).”

So the government can claim that its policies are “allowing” the RBA to trim rates, when it’s more like they are forcing the RBA’s hand. Monetary policy has to become more stimulatory to try to counter the contractionary effects of fiscal policy, with the promise of more to come from both sides of parliament.

That should lead to a broader debate about the best way to run an economy, as monetary policy remains a very blunt instrument. It’s much easier for the politicians to try to blame all their revenue woes on the currency rather than explain the more complex corner they’ve painted themselves into on speedy deficit reduction.
Click to expand...

Good point! Given the focus of both sides of parliamant on returning to surplus and tightening fiscal policy, it virtually forces monetary policy to fill the gap and ensure GDP still kicks along.

Whether or not the "surplus" fiscal policy is appropriate is a whole other debate. But the focus suggests more rate cuts to come as the hole gets bigger.... and bigger....

Cheers,
Michael
 
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