The Reserve Bank of Australia chose to lower the cash rate to 2.00%, in line with the broad market consensus that it would do so.
The key points to take from the meeting were:
- Commodity prices have declined somewhat sharply which will impact Australia’s terms of trade
- Household demand and employment are showing early signs of improvement
- The major drag on growth is coming from a substantial weakness in the outlook for capital expenditure
- Further depreciation in the AUD seems both likely and necessary
The main reason for the cut was however outlined in the final sentence:
“At today’s meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand”.
With no further guidance on interest rates, Stevens will give an update of the RBA’s forecasts in its Quarterly Statement on Monetary Policy which is due out on Friday. He will no doubt give updated guidance on the outlook for monetary policy on the back of the new forecasts.
For a copy of the statement please CLICK HERE.