RBA Left Rates Unchanged For Three Months, Signaled Further Easing Likely
The RBA left the cash rate unchanged at 3% for a third consecutive in March. While the policy outlook would remain accommodative, the central bank paused this month as recent economic data suggested that Australia's economic growth was close to trend with the help of increase in resources sector investment. The central bank statement showed few changes from the previous month, signaling that policymakers were holding more or less the same views as last month's concerning the economic outlook.
On global economic developments, the RBA stated that the US 'is experiencing a moderate expansion and financial strains in Europe are considerably reduced compared with the situation through much of last year'. Moreover, 'around Asia generally, growth was dampened by the earlier slowing in China and the weakness in Europe, but again there are signs of stabilisation'.
Domestically, economic growth was close to trend over 2012 as driven by 'very large increases in capital spending in the resources sector, while some other sectors experienced weaker conditions'. The central bank, however, reiterated the view that resource investment is peaking and there is a need for demand in other sectors to pick up so as to maintain the growth outlook. Meanwhile, the RBA noted that 'dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields'. On CPI, policymakers believed that inflation remained consistent with medium-term target, forecasting that it would stay inline with the target over the next 1-2 years'. The difference from the previous statement was that in March, policymakers pledged to focus on 'lifting efficiency under conditions of moderate demand growth' while in February the RBA stated that businesses were 'likely to be focusing on lifting conditions under conditions of moderate demand growth'.
Concerning the monetary policy outlook, policymakers hinted further easing is likely as with 'growth likely to be a little below trend over the coming year'. Moreover, benign inflation would 'afford scope to ease policy further. The RBA reiterated that it would 'continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target over time'.