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RBA’s Stevens Does As Expected and Cuts Rates

By:
Barry Norman
Updated: Aug 20, 2015, 23:00 UTC

As expected this morning the Reserve Bank of Australia cut rates to 3.0% a reduction of 25bps saying there’s a risk below-average global growth slows

RBA’s Stevens Does As Expected and Cuts Rates

RBA's Stevens Does As Expected and Cuts Rates
RBA's Stevens Does As Expected and Cuts Rates
As expected this morning the Reserve Bank of Australia cut rates to 3.0% a reduction of 25bps saying there’s a risk below-average global growth slows further while at home the labor market is subdued and capital spending on resources is peaking.

 Glenn Steven’s Director of the bank made the following comments. Risks to the outlook for global growth “are still seen to the downside, largely as a result of the situation in Europe, though the uncertainty over the course of US fiscal policy is also weighing on sentiment at present,”

This is the first time a central bank has made mention of the US fiscal cliff. Mr. Steven last commented on the US economy in his August 2 statement last year, when the US Congress stalled on agreeing to lift the debt ceiling and America’s credit rating got downgraded.

Republicans and the White House are again at odds as the deadline looms for the fiscal cliff, which could stall the world’s biggest economy. This is weighing on the global economy.

Mr. Stevens did note signs of improvement in the property market, with home prices rising, rental yields rising and an increase in building approvals. Inflation is consistent with the bank’s medium-term target, at around 2.5 percent on an underlying basis, though headline inflation may briefly rise above 3 percent, partly as a result of the introduction of a carbon tax, Stevens said.

While monetary policy has become “more accommodative” over the past year, as the bank lowered the cash rate, the Australian dollar “remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook,” he said.

This week sees 4 major central banks meeting. Coming next are the Reserve Bank of New Zealand and then the Bank of England and the European Central Bank. This will be followed by the US FOMC meeting. The Bank of England the FOMC are up in the air, traders are not sure what to expect this week.

The RBA’s meet comes two days before the RNZ reviews monetary policy, with governor Graeme Wheeler tipped to keep the official cash rate on hold at 2.5 percent. That would cut Australia’s interest rate advantage to half a percentage point.

“With the housing backdrop, there’s very little chance the RBNZ’s going to cut now or subsequently unless the offshore stuff takes a real turn for the worse.

This morning the Australia dollar bucked normal reaction and continue to climb, while a rate reduction usually causes a dip in value.

The Aussie current account and building approval data was also released today, both printing on negative sides of expectations. The AUD/USD is trading at 1.0446 after the banks news adding close to 25pips. The New Zealand dollar, known as the kiwi is trading at 0.8231 gaining this morning also.

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