The RBA Is Comfortable With The Aussie Dollar's Fall And Rate Cuts Are Off The Table For Now

Getty/Brendon Thorne

Australia’s central bank was much more aggressive and hawkish than the market and traders expected today – for the first time in months, the RBA materially changed its language in the Governor’s Statement after the morning board meeting.

While the the RBA decided to hold rates steady at 2.5%, as was widely expected, the Governor did harden the rhetoric around further rate cuts saying that “Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments.”

So rate cuts are off the table for a while.

On the other hand though rate hikes aren’t close with Governor Stevens discounting the uptick in inflation during the December quarter of 2013 noting it’s likely the result of a “faster than anticipated pass-through of the lower exchange rate, though domestic prices also continued to rise at a solid pace, despite slower growth in labour costs.”

This is likely to have also contributed to the more hawkish rhetoric in the statement and the omission of any reference to the Aussie dollar being overvalued in this month’s statement. Rather the RBA said “the exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.”

On the growth front the Governor once again mentioned that the economy was continuing on a below trend path but his reference to the accommodative nature of interest rate policy and the clear expectation that growth is on the improve more than balances this out in favour of the interest rate hawks.

All in all with no mention of the emerging market or stock market turmoil, and a direct reference to monetary policy setting being accommodative and, crucially that they policy is doing its job, the RBA has been much more aggressive than the market expected.

The Aussie Dollar was stable around 0.8750 all day dipping to a low of 0.8728 but its up more than 100 points now at 0.8840ish as a result of the RBA decision.

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