No rate cut from the Reserve Bank yesterday after its surprise cut last month.
The cash rate remains at 2.75% and the pressure on bank mortgage remains in neutral.
The bank’s decision sent markets higher in the afternoon and the Aussie dollar eased back under 97 USc as the central bank left an obvious ‘easing bias’ for all to read in the post-meeting statement from Governor Glenn Stevens.
The statement concluded with the now familiar words:
“The easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being.
"The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”
In other words, the bank has the firepower to cut again, if it sees the economy further softening (as this quarter could exhibit as the data flow continues for the next four months).
RBA sits and waits for economy to change
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And why does it want more time?
This comment from the statement provides the answer (the key bit is in bold type):
"The easing in monetary policy over the past 18 months has supported interest-sensitive areas of spending and has been reflected in portfolio shifts by savers and higher asset values.
"Further effects can be expected over time.
"The pace of borrowing has thus far remained relatively subdued, though recently there have been some signs of increased demand for finance by households."
And this statement:
"The exchange rate has depreciated since the previous board meeting, although, as the board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half. The board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time.”
Yesterday’s statement from Mr Stevens was only five paragraphs – the May 7 statement from him (when rates were cut) was 9 paragraphs long.
That’s partly a sign the bank has seen nothing in the past month to change its current stance which was outlined in the May 7 statement, the minutes of that meeting and the second Statement of Monetary Policy for the year (released on May 10).
It’s also a sign the central bank is very cautious about the messages from the data it is receiving, especially from the major economies in Asia.
