Reserve Bank of Australia (RBA) chose to keep the interest rate steady at 1.5 percent.

Let’s look at the details of policy announcement to assess the bias of RBA.

Key highlights:

• RBA notes that global economy is growing but now at much slower pace than earlier noted. Acknowledged labor market improvement in advanced economies but deteriorating conditions industrial production and trade. Chinese recent fiscal actions supporting growth in near term but underlying growth moderating.(Neutral bias)
• Inflation has quickened in recent times. Inflation outlook more balanced compared to the past. (Mild hawkish bias – new addition)
• RBA acknowledged the recent rise in commodities prices but notes that it is much lower compared to years back, so terms of trade is weaker for Australia. Commodity price increase boosting national income. (Mild hawkish bias)
• Financial markets functioning effectively. (Neutral Bias)
• Government yields rose recently but remain orderly and low as monetary policy globally remains very accommodative.  (Neutral bias)
• Despite weakness in mining investment, it is being offset by other areas of the economy such as trade, residential construction, and public demand. Household and businesses sentiment above average.(Neutral bias)
• Labor market improvement continues.  The labor market is giving mixed signals but employment expansion likely. There are considerable variations in employment across the country.(Neutral bias)
• Inflation is low and likely to remain so, as labor cost subdued. (Mild hawkish bias – change from prior statement)
• RBA seems to be less worried on the risks from rising house prices and considered supervisory measures effective. It said that some banks are taking additional caution. It however, acknowledges both decline and rise in prices in different areas but confident over upcoming supply. (Neutral Bias)
• Growth in rents slowest in some decades. (Mild dovish bias)
• Low-interest rates supporting economy and banks are in a position to lend for worthwhile purposes. Warns against stronger Aussie.(Neutral bias)
• RBA considers the current monetary policy stance prudent especially after easing in May and August. (Neutral bias)

Monetary policy hardly changed from the previous one. The policy is more tilted towards neutral but compared to the previous statement, it is mildly hawkish tilted.  That means, no action anytime soon, as the new governor continues to assess the situation.

Aussie is trading at 0.745, and we have forecasted Aussie to reach 0.81 against the dollar.