Only got a few minutes to read up on the latest Reserve Bank of Australia (RBA) meeting minutes? Here are the four main things you need to take note of:
1. The RBA is optimistic about the economic growth of its major trading partners.
It’s no secret that the Australian economy relies heavily on China, which is a major importer of raw materials and commodities. With China’s GDP growth projected to reach the 7.5% target for the year, RBA policymakers are feeling extra giddy about the positive impact on Australia’s manufacturing and export industries.
On top of that, growth among Western economies is starting to pick up pace as well, giving better growth prospects for the global economy. In the U.S., the rebound in the housing sector is expected to provide support to overall growth while subsiding financial concerns in the euro zone points to stability in the region.
2. But it’s not so optimistic over its domestic economy.
On the local front though, the economic situation might not be as rosy. RBA policymakers emphasized that GDP growth has been below trend and might stay that way for the coming months. After all, household spending and consumer confidence have been increasing slower than its usual pace.
To make things worse, mining investment is likely to keep declining in the next few years, as several mining projects are about to reach completion soon. It doesn’t help that joblessness has drifted higher in the past couple of months while leading indicators hint at slower hiring in the future.
3. The RBA thinks that its rate cuts are working its magic on the economy.
Did you know that the RBA had already cut its rates by a total of 225 basis points since late 2011? Yup, the RBA’s rates are now at 2.50%, its lowest since 1959!
The policy changes aren’t going to waste though, as the RBA believes that the rate cuts are helping lending rates go down to its historically low levels. Heck, you only need to look at the improvement in the housing market to see this! The RBA also thinks that the rate cut, coupled with a relatively cheaper Australian dollar, is working its magic in boosting economic activity.
4. But a rate cut in the foreseeable future is still on the table.
Don’t think that a rate cut is completely off the table though! In fact, the RBA had specifically said that while it isn’t cutting rates right now, it also isn’t closing the door to the possibility of more rate cuts. The RBA plans to check on economic data for the next few months to see if action is warranted. Of course, further weaknesses in the Aussie wouldn’t hurt either.
BONUS: Did you know that it would have been RBA Governor Glenn Steven’s last day today had he not extended his initial contract by three years?
Unlike Ben Bernanke, Glenn Stevens gets to keep his Central Bank Governor hat on for a bit longer.
In a bid to promote stability ahead of the Australian elections, Australian Treasurer Wayne Swan extended Stevens’ term for three more years last April. His last day would have been September 17, 2013 after getting appointed in September 2006. Looks like we’ll be seeing more of his awesomeness!