Australia Expects No Cut To Rates

Market Trends - 27/01/2016

Global market slowdown compounded by falling prices in the commodities market casts a heavy shadow over the economy of Australia. Nevertheless, the Australian Bureau of Statistics reported growth in the country’s inflation rate in the latest numbers, with many constituent metrics of the headline CPI rising. Over the twelve months to December in 2015, inflation ascended to 1.70% compared to the twelve months until September of the same year at only 1.50%. On a quarterly basis, fourth quarter consumer prices rose to 0.40%. The rise is largely due to weakness in the country’s currency, which increases competitiveness on both sides of the import export economy. Tobacco, despite a recent federal taxation, and domestic and international holiday travel contributed to the rise in consumer prices during the quarter, offsetting falling prices in automotive fuels and communication services. Tradable goods reported growth of 0.80% over the year that constitutes 40.00% in the CPI headline value. Economists that envisaged a cut in interest rates due to recent shocks in the global economy may be disappointed, as the numbers illustrate a country able to keep above water despite tough trends and a lack of intervention.


The Reserve Bank of Australia cut interest rates to record lows of 2.00% in May of last year and has kept them untouched ever since. The Governor of the RBA Glenn Stevens reiterated that monetary policy will be kept flat until the inflation target of 2.00% - 3.00% is grasped in addition to improvements in the labor market. Jobs data over the recent months has proven to be remarkable as nearly 300,000 citizens have been employed over 2015, unemployment is gradually diminishing whereas inflation data appears to be scratching the lower part of the Bank’s target. Even as home prices are rising, major cities in Australia are reported to be some of the most unaffordable places, with construction starting to decelerate as the fear of reversing rates takes hold. The recent statistic has outweighed economist beliefs of a rate cut, with them transitioning to statements that belie they believe in a holding in interest rates as the Central Bank prepares to announce its monetary policy on Tuesday, the 2nd of February.

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