RBA May Impose Rate Cuts in December

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By Erik Pineda | November 20, 2012 5:42 PM EST

A lower cash rate right before the 2012 Christmas season goes into full swing remains a possibility as suggested by the Nov. 6 RBA board meeting minutes, which hinted that 'further easing' could be on the way.

That same meeting opted to keep the nation's benchmark borrowing cost at 3.25 per cent, hitting the brakes on the Reserve Bank's 12-month inclination of shaving off the interest rate, which by this month already shed 125 basis points from the 4.5 per cent seen last year.

The board will reconvene in December and analysts would like to toy with the idea of another rate push back to cap the present year but also hinted to February 2013 as the likely preferred month for RBA's next cash rate reduction.

The chief reason was given by the team headed by RBA governor Glenn Stevens, the minutes of its last discussion, released on Tuesday, read: "The effects of the earlier reductions in the cash rate were continuing to work their way through the economy and members expected that further effects of these changes were yet to be observed.

It is only logical, economists said, for the central bank to allow the perceived benefits of its past intentions to trickle down and take effect considering that latest economic data suggested of a domestic setting that if far from struggling.

As of Q3 2012, Australia is looking at much solid inflation indicators and the nagging financial woes in Europe, effects of which were feared to spill over on key economies, appeared to improving plus the seemingly stabilising development in the United States, both economically and politically.

These factors should make the case for another pause in December or if ever there would be a reduction move on RBA's part, it will not come until the second month of 2013.

But then again, the rate cutback could be imposed a little sooner as the RBA noted on its last meeting that uncertainty seems stubbornly hovering.

According to the Australian Associated Press (AAP), two things seem to bring in some worries for the RBA board: "further moderation in wages growth ... and ongoing growth in labour productivity."

Plus for the RBA, "there was uncertainty about the overall pace of growth of demand (consumption and investment spending) in the economy over the forecast period," as the last board minutes revealed.

It also allowed that "members considered that further easing (in interest rates) might be appropriate in the period ahead."

Yet no definite time frame was laid down because the board appears more bent on an 'extended pause', TD Securities strategist Alvin Pontoh told The Australian on Tuesday.

"Overall, the RBA has appropriately maintained an easing bias but we see no obvious trigger for a December rate cut at this stage," Mr Pontoh added.

While conceding that a slow down was observed earlier this year, the RBA also pointed out that the underlying inflation rate, last listed at 2.5 per cent, was within the target band of two to three per cent.

"With prices data for the September quarter slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being," said the central bank.

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