RBA monetary policy – assessing the bias

Reserve Bank of Australia (RBA) decided today to keep its monetary policy steady with interest rates at 2% against some expectations in the market for further easing.

Though the central bank may have kept the options open further easing, though that may not be any time soon. Several comments keep on suggesting so and monetary policy statement expressed no immediate major concern.

Key commentaries

• RBA seeing moderate growth globally...no change from previous.
• Mentioned terms of trade deterioration ...... negative for further rate cut and weak Aussie.
• Improvement in domestic economy...again negative for further easing.
• Housing sector still a concern but somewhat lesser. According to RBA, owner occupied housing are picking up.....positive for further policy easing.
• Inflation forecast little lower and likely to remain weak going ahead for another year or two. Doesn't seem over concern by it.......lower inflation opens up opportunity for further easing but overall neutral.
• RBA shrugged off recent rise in mortgage rate, calling it "slight" and thinks overall condition is accommodative.....negative for further easing.
• RBA thinks weaker inflation may provide opportunity to cut rates but will do to support demand.....inflation doesn't seem much of a concern at this point. Negative for further easing.

With market action in Australian Dollar, it seems some in the market, expecting RBA to fire in today's meeting after inflation unexpected dropped in the third quarter.

However, market was signaling there may not be a cut as price formed a bullish engulfing candle last Friday.

Australian Dollar is currently trading at 0.72 against Dollar, some further gains seem likely.