RBA signals steady rates outlook

10 Feb 2012, 11:42 am   -   Source: AAP
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The RBA in its quarterly monetary policy statement has repeated the message of its rates decision on Tuesday - on hold with flexibility to cut if needed.

The Reserve Bank of Australia has not given any new clues about the interest rate outlook in its quarterly monetary policy statement.

The central message seems to be that rates are on hold for the time being, with the option to trim the cash rate further - but only if the economy shows new signs of weakness.

In the statement, the RBA repeated the message from its announcement on Tuesday, when its board met and decided to keep the cash rate at 4.25 per cent, rather than cutting it to four per cent as most observers had expected.

The bottom line for the RBA is that inflation is expected to be contained near the middle of the two to three per cent target range until mid-2013, abstracting from the modest impact of the carbon price, drifting into the top half of the band early in 2014.

Economic growth is forecast to be in the three to 3.5 per cent range - near the long-run historical average - until mid-2013 with some upside potential after that, with a range of three to four per cent pencilled in for growth through 2013.

The key for the RBA is how the risks are distributed around these forecasts.

"The risks to the inflation outlook appear evenly balanced," the RBA said in the statement.

On the upside, as far as inflationary risks are concerned, the mining boom and the global economy could turn out to be more positive for the local economy, while domestic cost pressures seem to be worrying the RBA as well.

On the downside, Europe looms as the major worry, although the high exchange rate could also be more of a negative offset to the mining boom than previously thought.

The RBA repeated its suggestion that more cuts could be possible despite the steady-as-she-goes economic and inflation outlook.

"The current inflation outlook would, hover, provide scope for easier monetary policy should demand conditions weaken materially," it said.

But - while a new outbreak of anxiety over Europe, or more signs of weakness in the Australian labour market could change things - there is no sign that a rate cut is currently being considered as a real possibility for the March 6 board meeting.

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