Reserve Bank of Australia (RBA) chief on Friday dealt a blow to market expectations for deep interest rate cuts, saying while global uncertainty has risen, it was still too early to tell if this would restrain inflation at home.Glenn Stevens, regarded as one of the world’s most hawkish central bankers, also told a parliamentary committee that inflation is “a bit troubling, but it’s not out of control,” suggesting that rates may be on hold for the next few months.
Stevens said there would be room to cut rates if there was a dramatic turn for the worse in the global economy, something which he does not see at the moment.
In fact, he painted a fairly upbeat picture of the local economy, pointing to the record high terms of trade and a labour market that is nearly fully employed.“Our banks are strong, our currency is sound and our sovereign credit position is in the international top tier,” he said.“Consumer caution, while making life hard for the retail sector, is also building resilience in household balance sheets. If we’re entering another period of weaker international conditions, this is a pretty good starting point from which to do so.”
Stevens also said growth prospects in Asia remained “pretty good”, particularly China, the country’s biggest trading partner.
“For us, this does not sound like a central bank that is likely to deliver on market expectations of a 100 bps of easing this year,” said Gavin Stacey, economist at Barclays Capital.
The RBA left its cash rate unchanged at 4.75 per cent at its Aug.2 policy meeting, saying downside risks to the global economy had increased significantly due to the volatility in financial markets, a major reason it decided not to raise rates. It was among the first major central banks to start tightening back in October 2009, and it lifted rates steadily from 3 per cent to 4.75 per cent by November last year.
The pre-emptive move had worked well to temper spending and price pressure and Stevens said on Friday the central bank was still ahead of the game on inflation.
From / Gulf Today