RBA holds key rate at 0.75%, as expected

Author: Adam Button | Category: Central Banks

RBA holds cash target rate unchanged


  • The market had priced in an 8% chance of a cut today
  • The next meeting is Feb 4
Highlights of Lowe's statement:

  • Outlook for global economy is reasonable but risks tilted to the downside
  • Rates to remain low for extended period
  • Sees inflation close to 2% in 2020 and 2021
  • Prepared to ease monetary policy further if needed
  • Rate cuts supporting employment and income growth
  • Pick up in wages would be welcome development
  • Weak household income growth is weighing on spending
  • Risks to global economy have lessened recently
  • Given long lags in monetary policy, decided to hold steady
  • Repeats that Australian economy appears to have reached a gentle turning point
The initial reaction in the Australian dollar has been higher with AUD/USD up to 0.6832 from 0.6820.

The final paragraph of the statement is telling:

Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market. The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
Versus this in the Nov statement:

The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range. Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

The comment about the lag in policy is a hint that they're done cutting.
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