The Reserve Bank of Australia cuts again

This day’s morning press conference was not what the markets wanted to hear by Mr. Glenn Stevens.  It seems that the rate hike of 2008 still frightens the market. Effectively today the RBA cut again the cash rate by 25 basis points, bringing it to the record low of 2%. What the market wanted to hear by Mr. Glenn, was that this policy would be continued on the near future. The reaction of the Aussie dollar suggests that this is not much clear.

The board of the central bank decided to lower the cash rate in a situation where inflation doesn’t look to be a problem for the moment. The Aussie dollar has been weakening in the last 6 month principally against the dollar and less against other major currencies. This was because of the consecutive cuts decided by the RBA. The bank hopes to see a further depreciation at the currency so that could push the exports of prime materials and sustain the rebound of the economy.

In the second part of the year the central bank expect the inflation to rebound because of the rising demand in the real estate, in the export of raw materials and in the strengthening labor market. Referring to the official statement released by the governor, the RBA will start to increase rates later this year. However, inflation will remain consistent with the official target of the bank throughtout the year.

Investors look a little confused and concerned at this moment because they didn’t expect the RBA to make such declarations to invert its monetary policy so fast. That’s why the Aussie dollar reacted confusedly in the today’s trading session. Initially it fell against the major currencies, specially the GBP and afterwards it strengthened.

The market, differently from the common people, has a long memory. The rate hike of 2008 by the RBA just at the beginning of the global crisis is still too fresh on the mind of investors. The investors’ hope is, not to see another time Mr. Glenn Stevens increasing too fast the rates. The global recovery is still not so strong and may be that the country needs some more time before starting to move the rates in the upper side.

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