“The statement didn’t meet market expectations, and they seemed to look through the weaker global activity and global volatility”, said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland.
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Australia’s central bank kept its cash rate steady at a record low of 2.0 per cent on Tuesday, a widely expected decision given signs the domestic economy was holding up in the face of global headwinds.
Doubts about the mooted “gradual” four rate rises this year are creeping in as United States data reflects economic growth problems.
The Reserve Bank noted in particular the extreme volatility in oil prices recently, together with the turbulence suffered by global financial markets so far this year as investors grapple with the outlook for the world economy. Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened.
Stevens said recent data suggests that the expansion in the non-mining parts of the Australian economy “strengthened during 2015 even as the contraction in spending in mining investment continued”.
The language around the domestic economy, with the statement noting solid business conditions, the pick-up in employment growth, and the decline in the unemployment rate.
AMP Capital chief economist Shane Oliver still expects the RBA to ease policy in either April or May as global risks and falling commodity prices that are lowering Australia’s terms of trade, “still subdued Australian growth” and lower inflation.
“A lot of people who have held on to their houses since 2012, or a bit earlier, have seen prices increase by 50 per cent – if they come back 5 per cent, its probably not too much of a worry”, he said.
The RBA rate announcement and monetary policy statement will be released at 2.30pm AEDT.
“Low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market”, he said in a statement.
Economic fundamentals remain mixed; the monthly unemployment rate is unchanged at 5.8%, but employment has barely budged, although there has been an increase in full-time employment accompanied by an offsetting decrease in part-time employment.
Policymakers judged that there were reasonable prospects for continued growth in the economy, with inflation close to target.
Shadow Board ascribed a 69 per cent probability to 2 per cent being the correct monetary setting.
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The central bank said that its board members had observed that the inflation outlook could afford scope for further easing should it be required to support demand.
