Much to the surprise of most economists, the RBA kept the cash rate steady in February. Information available since the December meeting confirmed that economic conditions in Europe were weakening late last year, with significant downside risks. In line with this, most forecasters have lowered their forecasts for world GDP growth this year to a below trend pace.
On the other hand, data from the United States is suggesting a continuing moderate expansion after a soft patch in mid 2011 and China is still looking strong despite some concerns over moderating growth.
The minutes of February’s board meeting released today pointed to global economic and financial market developments being somewhat more positive over the past month or so. Domestically, the minutes note that while housing prices had declined over 2011, there were signs of stabilisation in some major cities around the end of the year. Building construction activity remained subdued, reflecting the pull-forward from the earlier boost to grants to first home buyers, slower population growth, tight access to credit for developers and lowered expectations of capital gains.
The minutes conclude by saying;
Members noted that the Board’s decisions in November and December 2011 to lower the cash rate by a cumulative 50 basis points in response to the improved inflation outlook and deterioration in the global economy had been passed through to most lending rates in the economy, which were now around average levels. With growth expected to be close to trend and inflation consistent with the target, the Board considered that this setting was appropriate for the overall macroeconomic outlook. They judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.
The full meeting minutes can be found here: http://www.rba.gov.au/monetary-policy/rba-board-minutes/2012/07022012.html