The Reserve Bank of Australia (RBA) has indicated that it will likely keep interest rates on hold until August in the minutes from the June RBA board meeting.
The Reserve Bank’s minutes from the June board meeting tell of global instability in the short term emanating from Europe, particularly Greece, Spain and Portugal. This instability in Europe has caused credit and bond markets to retract with this giving rise to liquidity problems in the market, but to a lesser scale than during the GFC.
“The difficulties in Europe would inevitably weigh somewhat on prospects for global growth. However, in areas such as Asia where growth had recently been strong, it had become more likely that the withdrawal of policy stimulus would be delayed as a result of the developments in Europe.” The RBA minutes read.
While internationally the situation faced by the Australian economy has grown more uncertain over the last month, the RBA took the view that the medium term outlook was positive. This comes on the back of strong prices for Australian commodity exports, with high terms of trade figures bolstering Australian incomes.
The RBA believes that most economic indicators suggest that the Australian economy has continued to recover from the GFC. Conditions, however, clearly differed across sectors and aggregate spending was still being supported by public demand. While recent data for prices and wages suggested that the disinflationary forces in the economy were not quite as strong as previously expected, global events could also have implications for the inflation outlook in the medium term.
Importantly for those keeping an eye on interest rates, the RBA believes that the CPI data (inflation) for the June quarter, which would be released in late July, would provide information on the extent of inflationary pressures in the economy and is likely to determine whether rates are increased further at the RBA board meeting in August.
