Interest rates on hold, but next move is down

The Reserve Bank has left the official cash rate on hold at 7.25% this afternoon, but says the next rate movement is downwards.

The Reserve Bank has left the official cash rate on hold at 7.25% this afternoon, but says the next rate movement is downwards.

“Weighing up the available domestic and international information, the board judged that the cash rate should remain unchanged this month,” RBA Governor Glenn Stevens said in a statement.

“Nonetheless, with demand slowing, the board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.”

The exact timing of that rate cut will be the subject for debate among economists. While some have predicted a cut as early as September, CommSec economist Craig James has warned that is no certainty. “The Reserve Bank has moved to an easing bias, but it’s a very soft easing bias,” he told Sky News.

Stevens’s statement is noteworthy for its pessimistic tone, and highlights rising fuel costs, lower asset values and a softening in business and labour market activity.

The RBA also seems to be growing in confidence that inflation is on the way down.

“Inflation is likely to remain relatively high in the short term, with the CPI affected by high global oil prices. Looking further ahead, inflation in both CPI and underlying terms is likely to decline over time, given the outlook for demand, provided wages growth remains moderate. The bank’s forecast remains that inflation will fall below 3% during 2010.”

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