Amid escalation of global uncertainties, Reserve Bank of Australia (RBA) is preferring steady policy on its interest rate, and given the medium term outlook for the mining investment boom, next move on the rate will be up, not down, expert said on Tuesday.
RBA on Tuesday announced to keep interest rates on hold at 4.75 percent for the 11th straight month, citing unsettled conditions in global financial markets.
There have been speculations that RBA will cut rate later this year due to the glooming business confidences and global finance market downturn. However, HSBC Australia and New Zealand chief economist, Paul Bloxham said the tone of the post-board meeting statement suggested RBA does not tend to fine tune and steady policy is preferred.
While this is the longest period of steady rates for the current governor, Bloxham, a former RBA economist, said it is not unusual for the central bank to sit still for a long time.
"We think the RBA is still very keen not to have to cut rates, if it can avoid it, given the medium term outlook for the mining investment boom, the very high terms of trade and the limited supply capacity of the economy," he told Xinhua in an email note on Tuesday.
"As we have pointed out repetitively, to cut rates the RBA would need to be able to credibly revise down its underlying inflation forecasts from above the target band down to the lower half of the target band.
"This is a long way to move given the very strong pick up in mining investment, weak supply side of the economy and general global inflationary environment. Add to this that the exchange rate is now giving them less help."
He said RBA will now focus on the upcoming CPI numbers, published on 26 October, just days before the RBA board is next scheduled to meet on November 1.
Meanwhile, federal Treasurer Wayne Swan said the decision to leave the cash rate unchanged reflects a balance between continuing global uncertainty and Australia's medium-term overall domestic strength.
Apart from the low unemployment, strong public finances and record pipeline of business investment, Swan said the latest international trade report from the Australian Bureau of Statistics (ABS), also released on Tuesday, further underscored the economy's strong fundamentals.
The data showed a trade surplus of 2.9 billion U.S. dollars in August, the second largest surplus on record, and driven by an eight percent jump in exports.
"We should take comfort in the fact that our situation is in stark contrast to many advanced economies, and the RBA confirms today it has room to move if the global situation further deteriorates," Swan said in a statement on Tuesday.
RBA last raised its interest rate for 0.25 percent to 4.75 percent in November 2010.