Australia’s central bank governor has indicated that further interest rate hikes could be put on hold, in order to judge the true strength of Australia’s economic rebound and not choke a recovery.
This comes after the country was the first of the G20 exit from monetary stimulus with increases to its cash rate.
While Australia is still very likely to increase interest rates further, traders have already priced-in substantial rate hike expectations.
The Aussie dollar came off after the central bank merely expressed patience in implementing the nation’s exit from monetary stimulus. It’s looking a bit late in the game to be betting on the Aussie dollar right now.
WSJ: “Looking ahead, members expected that if economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time, though the pace of the adjustment remained an open question,” it said in minutes of its Nov. 3 policy meeting.
In the minutes, the central bank highlighted the job the strong Australian dollar will do in providing a headwind for the economy’s recovery in 2010.
“The rise in the exchange rate would constrain output and dampen inflationary pressure,” it said. The RBA also pointed to tight credit conditions for some borrowers as a constraint on growth.
However, it warned “a lengthy period with interest rates at a very low level carried its own risks, particularly once the threat of serious economic weakness had passed”.