Australia’s cash rate will remain at 4.75 per cent, with strong growth and good terms of trade outweighing the temporary disruption due to flooding:
In setting monetary policy the Bank will, as on past occasions where natural disasters have occurred, look through the estimated effects of these short-term events on activity and prices. The focus of monetary policy will remain on medium-term prospects for economic activity and inflation.
Were it not for the flooding, this would be quite a bullish statement. “Australia’s terms of trade are at their highest level since the early 1950s and national income is growing strongly,” says the Bank. “Employment growth was unusually strong in 2010. Most leading indicators suggest further growth, though most likely at a slower pace.” Read more
Upbeat minutes just released from the Australian central bank show that though the domestic situation looks healthy, falling inflation and increased uncertainty over the global outlook informed the decision to hold rates at 4.5 per cent.
Causing envy to major central banks, no doubt, the RBA is firmly focused on growth. The graphic, right, shows it was the most popular word from the minutes (credit: Wordle). Excerpts below:
Growth in Australia’s trading partners had been very strong, at around 6 per cent in export-weighted terms over the year to June.
While growth had been boosted by fiscal stimulus over the past year and a half, this would be reversed in the period ahead as public investment declined following the completion of stimulus-related projects.