While the Reserve Bank of Australia (RBA) had retained on Tuesday the current 3.5 per cent overnight cash rate for the third consecutive month, the central bank at the same time signaled it is ready to cut rates in October.
The hint matches analysts' expectations and forecast that another rate cut would happen in the last quarter of 2012.
RBA Governor Glenn Stevens, in his Tuesday statement, said the central bank does not need to wait for the traditional Melbourne Cup Day board meeting after the release of inflation figures in late October. He indicated the rate decision could be out during the RBA's Oct 2 monetary policy board meeting.
Mr Stevens said the RBA is still monitoring the impact on the Australian economy of two key lending rate cuts made in May and June.
"As a result of the sequence of earlier decisions, interest rates for borrowers are a little below their medium-term averages . . . The impact of those changes is still working its way through the economy, but dwelling prices have firmed a little and business credit has picked up this year," Mr Stevens said.
Michael McCarthy, chief market strategist of CMC Markets, said the RBA has made it clear in its May and June decisions that the main drivers of those two interest rate cuts were international threats, specifically those from Europe. He opined that the RBA's more positive reading on the eurozone situation implied the central bank would not likely cut interest rates this year.
Mr Stevens added that a rate cut would be hinged on movements in the international economy and a rate hike on the Australian economy's ability to handle a softer dollar.
"The bank's assessment is that inflation will be consistent with the target over the next one to two years. Maintaining low inflation will, however, require growth in domestic costs to remain contained as the effects of the earlier exchange rate appreciation wane," he said.
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