RBA Meeting Minutes Show No Rate Cuts in Sight

The Reserve Bank of Australia reported they have the resources to ease monetary policy if it becomes necessary. The Reserve Bank left the country’s overnight cash rate unchanged for this month in their last (February 7th) meeting. Conditions that could call for a change in action by the bank included increased inflation. The bank was concerned with events proceeding in Europe but was less concerned that an “extremely bad outcome” would result from it. The central bank unexpectedly left the overnight cash rate unchanged after lowering it by 0.25% two consecutive times the preceding (2011) year. The bank implemented the reductions to offset difficulties the country was experiencing as the European debt crisis was materializing. The central bank’s governor, Glenn Stevens reported the cuts, “had been passed through to most lending rates in the economy, which were now around average levels.” Since the meeting, the four largest banks in the country raised their standard variable mortgage rates sparking criticism from the government. The RBA reported that the banks had large costs from sending money overseas, the increasing competition for deposits, and their ability to cover bond sales. The central bank explained that, “Collectively, these developments had increased banks’ overall cost of funding relative to the cash rate and had narrowed the difference between banks’ lending rates and funding costs.”

The Reserve Bank of Australia is expected to keep rates on hold until May according to today’s report. With the second bailout package for Greece receiving approval, we expect conditions in Europe to stabilize. If the crisis in Europe sees no further escalation, we expect the Reserve Bank of Australia to keep rates on hold until the end of the year. The AUDUSD has been trading in a range between 1.0650 and 1.0800 for the last several trading sessions. If the pair breaks above 1.0800 on positive sentiment, we expect the AUDUSD to target 1.1000.

Eugene Ross, Analyst

Admiral Markets

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