Reserve Bank of Australia - Interest Rates

Submitted by Share Trading on 2 April, 2008 - 13:31

Here's commentary by market analysts Macquarie Research Equities about the RBA (Reserve Bank of Australia) and Interest Rates. They talk about the current issues about the Australian interest rates and monetary policy. There may be a possible interest rate rise next month.

RBA – The Interest Rate Factor

The monetary stance taken by the Reserve Bank of Australia (RBA) over recent periods has certainly attempted to curtail the elevating inflationary pressure; a transpiring affect of global economic health. Yesterday the RBA maintained the cash rate at 7.25% in April and provided some interesting comments emphasising that the bank is adopting a more cautious approach. Macquarie Research Equities provides some insight into the central banks’ commentary and the implications for further monetary tightening.

Both the global and domestic financial markets are an underlying concern for the RBA. The fragility of global credit and liquidity as a direct result of sub-prime have caused serious complications for the banking sector. The Australian banks, more specifically, have also experienced increased funding costs that have resulted in the banks increasing their lending rates by more than the rate rises set by the RBA. Describing their monetary and financial tightening, the RBA states that they their interest rate decisions are “working to foster the moderation in demand growth that will take pressure off inflation”.

The RBA also warned that inflation is likely to accelerate further in March but should decline over time as long as demand slow as expected. Thus the RBA will continue to show a tightening bias until they see real evidence of moderated consumption growth. It should finally be noted that there are still several supply issues which are putting pressure on inflation; pressures which cannot necessarily be nullified by slowing domestic demand.