RBA cuts rate by 25bp to 3% as expected

FXstreet.com (Barcelona) - Following a full array of weakening data in Australia since the RBA held its hand steady at 3.25% in Nov, the CB has been forced to cut the cash rate by 25bp to end the year at 3%. The decision comes in line with market expectations, which had been pricing in over 90% chances of a cut today. The cut helps foster sustainable growth, RBA said.

The RBA said risk to the global outlook are still skewed to the downside. "Global growth is forecast to be a little below average for a time" the RBA said. They add that "the uncertainty over the course of US fiscal policy is also weighing on sentiment at present." In Asia, the RBA sees growth dampened "by the more moderate Chinese expansion and the weakness in Europe."

RBA sees headline CPI reaching levels above 3% briefly. As stated: "Partly as a result of that [carbon price affecting consumer prices] headline CPI inflation will rise above 3 per cent briefly." Although in general terms, RBA sees inflation consistent with medium term target. RBA adds that "a continuation of moderate wage outcomes and improved productivity performance will be needed to keep inflation low." On investment, "generally outside the resources sector, remains relatively subdued" RBA notes.

RBA expanded: "Over the past year, monetary policy has become more accommodative. There are signs of easier conditions starting to have some of the expected effects, though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook. While the full effects of earlier measures are yet to be observed, the Board judged at today's meeting that a further easing in the stance of monetary policy was appropriate now. This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time."

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