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RBA Reserve Bank Interest Rate Decision for August 2014?
Topic Started: 7 Jul 2014, 01:56 PM (3,180 Views)
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RBA: what to watch out for

August 5, 2014 - 10:34AM
Max Mason

The Reserve Bank of Australia is expected to stand pat later today, but there will be plenty for Governor Glenn Stevens and the central bank board to consider.

A decision to hold the official cash rate on hold will make it 12 months since the RBA took rates to a record low of 2.5 per cent.

The key item economists will be looking out for in Mr Stevens' statement on the monetary policy decision will be the final paragraph, which last month stated: "On present indications, the most prudent course is likely to be a period of stability in interest rates."

"I think there’s some risk that that it is either amended or omitted," Deutsche Bank chief economist Adam Boyton said.

"The reason why I say that is the Governor has mentioned a couple of times over the past month that long before the bank thinks about changing policy it’s probably sensible to amend that wording largely so that the market doesn’t get too attached to it," Mr Boyton said.

But a change in the wording of the RBA statement does not signal a change in policy, with the central bank still likely to keep interest rates on hold for some time.

"Although financial market traders hate it, I think the outlook remains an extended period of stability in interest rates," Bank of America chief economist Saul Eslake said. "I don’t expect the Reserve Bank to alter the crucial last paragraph of its post meeting statement."

Although the Australian dollar remains stubbornly high, Mr Stevens and the RBA board are unlikely to again attempt to talk down the currency, instead waiting for the US economy to improve and the US Federal Reserve to complete tapering its stimulus program and raise rates.

However, the Fed, while expected to begin assessing when it should raise interest rates, has given no clear indication of when it will do so, leaving the RBA and the Australian dollar waiting on the US central bank.

"Our expectation is for the Fed to move in the fourth quarter of next year, that’s one reason why we don’t expect the RBA to move until the first quarter of 2016," Mr Eslake said.

"I think the RBA now believes there is not much point in risking their credibility by persisting with attempts to talk the currency down that won’t work."

The RBA may repeat the sentiment that the dollar is high, especially given what commodity prices have done this year.

Read more: http://www.smh.com.au/business/the-economy/rba-what-to-watch-out-for-20140805-100gaq.html
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Gossamer
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Today will mark 1 year since the last interest rate change. I suspect this Mexican standoff will continue for some time.
Edited by Gossamer, 5 Aug 2014, 01:27 PM.
Common sense is a curse - those who have it need to suffer dealing with those who don't have it.

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