Tuesday, October 02 07:28:06
Australia's central bank cut its main cash rate by a quarter point to 3.25 percent on Tuesday, saying the growth outlook for next year looked a little weaker, while inflation was likely to remain contained within its target. The Australian dollar plumbed a one-month low around $1.0309 as the market had priced in a two-in-three chance of a cut, while many analysts expected the bank would hold off until November. The Reserve Bank of Australia (RBA) announced the decision after its monthly policy meeting. ************************************************************** KEY POINTS: * RBA cuts its cash rate 25 bps to 3.25 pct, the lowest in three years. Brings total easing since last November to 150 basis points * RBA says it is appropriate for monetary policy to be a little more accommodative, citing weaker global and domestic growth outlook. * RBA says inflation will be consistent with its 2-3 percent target range over the next one to two years. * RBA says peak of resource investment likely next year. * Text of the statement can be found on or by double-clicking on * The Reserve Bank's Web site is at: http://www.rba.gov.au/
JOSH WILLIAMSON, SENIOR ECONOMIST, CITIGROUP "It was a bit of a surprise... The RBA is trying to stay ahead of the activity curve and take out a bit of insurance because they are probably a little less optimistic about the pipeline and resources investments so they are trying to stimulate parts of the non-mining sector." "This will free up financial conditions a bit more and I would expect to see further support for house prices, consumer sentiment and boost retail trade going into Christmas. We don't expect further rate cuts."
MICHAEL BLYTHE, CHIEF ECONOMIST, COMMONWEALTH BANK: "The most significant new part of the statement is the comment about the peak of the resource investment being next year, they've been saying the next year or two. If that's true, we'll be looking for the non-mining part of the economy to start making a greater contribution a bit sooner and lower rates are one way to assist that growth transition. It's certainly a big call to say they're now finished...November looks a real possibility for another cut, particularly, if we get another friendly-looking CPI number."
TOM KENNEDY, ECONOMIST, JPMORGAN "I don't think they are too downbeat on the prospects...a lot of the commentary surrounding the European region, China and the United States. We have seen that before. "They caution around that. They certainly have become more downbeat on those influences. It's generally quite a neutral statement. "The presence of those risks on in the international environment is definitely something that's weighing on the RBA and has contributed to today's decision. "Going forward we still think the board is going to lower the cash rate again...to 3.0 percent (by February next year)."
SU-LIN ONG, SENIOR ECONOMIST, RBC CAPITAL MARKETS "The case to ease has been strengthening for some time. I think the weakening in global growth momentum particularly uncertainty over China, the mixed nature of the Australian data, and the likelihood of a moderation in growth here has pushed them to go sooner rather than later. "We have to say that if they thought the case today was compelling, then the odds are that things are travelling faster than they thought and that leaves the door open for another cut we think before year end. Either November or December depending on how the data pans out over the next month including the key CPI numbers."
SHANE OLIVER, HEAD OF INVESTMENT STRATEGY, AMP CAPITAL INVESTORS "I think they have done the right thing. The global economy is looking a bit shaky. Certainly growth forecast has come down and meantime domestic indicators are not too bad, but they are probably not strong enough to fill the gap left by the softening mining sector. The bottom line is that with inflation remaining low, there's plenty of scope to cut rates." "I expect them to cut rates further. We are looking to another 0.25 percent cut in November, and then another one in February or March next year, taking the cash rate to 2.75 percent."
MARKET REACTION: The Australian dollar fell to $1.0309 after the policy announcement. Interbank futures were mixed with the front-month contracts turning positive as the market had not been fully priced for a move this week. The market still implies further easing toward 2.75 pct over time.
* A Reuters poll of 19 analysts had found 13 expected no change in rates this week, though most did anticipate a move by year-end. * The RBA cut rates by 50 basis points in May and 25 bps in June, and then paused to judge the impact of the easing. * Data suggests those cuts have had only a modest impact on domestic activity, with house prices just a shade firmer and credit growth still very subdued. * More worryingly, prices for key resource exports, iron ore and coal, have weakened markedly in the last few months leading some miners to row back on aggressive expansion plans. * The local dollar has remained high even as export prices slid, threatening to be a drag on currency-sensitive sectors such as manufacturing and tourism. * The global outlook also darkened as the European debt crisis pulled that region into recession, while China slowed more than many had expected. The Asian giant is Australia's single biggest export market. h With domestic inflation subdued near the floor of the RBA's 2 to 3 pct target band, the central bank has indicated there would be scope for a rate cut if necessary. ( C) Reuters