RBA Is Likely To Cut Interest Rates Tuesday The Reserve Bank of Australia is likely to cut interest rates again when it meets Tuesday as the economy there continues to struggle. Expectations of a 25-basis-point cut are fully priced into the futures market; a cut of that size would bring the cash rate to 2.5%, said Jordan Eliseo, chief economist at ABC Bullion in Sydney. “That’s 50 bp lower than were rates were following the GFC (global financial crisis). It’s a pretty clear sign of how weak the Australian economy is now, that they have to go lower than where they were at the height of the financial crisis,” he said. Dovish comments earlier this week by RBA Governor Glenn Stevens underscored the idea of a rate cut at next week’s meeting, currency analysts said. “RBA Governor Stevens reiterated that there was scope to cut rates after last week’s CPI data, and opined that the decline in the Australian dollar did not threaten the inflation outlook,” said analysts at Brown Brothers Harriman. Stevens’ comment came on the heels of sharply lower-than-expected building approvals from Australia and New Zealand, which dropped 6.9% month-over-month and 4% month-over-month, respectively, said BNP Paribas . His comments helped to trigger a sell-off in the Australian dollar, BBH and BNP said, and since then the currency has fallen to a three-year low when it dropped under $0.9000. The majority of economic data in Australia “has been really disappointing,” Eliseo said, noting lukewarm retail sales, a pickup in unemployment and business conditions are at a four-year low. “The hope …. was that as the mining boom wanes, that other parts of the economy will pick up as a result of lower interest rates. But what we’re seeing (is) investment intentions in the non-mining sector in terms of capex and hiring are very weak right or negative now. That transition is not occurring,” he said. Australia’s Purchasing Managers Index contracted on Thursday, which was at odds with PMI data for several other countries, giving more credence for the RBA to cut rates Tuesday. BBH said not only is the market expecting a cut next week, but there are “signals from the central bank that there is still scope for additional cuts.” The RBA meeting comes just after the U.S. Federal Reserve’s July meeting. No policy action was taken and there was no mention of tapering back of the Fed’s bond-buying program. Debates now circulate whether or not the Fed will take action at their September meeting regarding the program. The combination of the comments from the RBA this week and the Fed’s stance helped to pressure the Australian dollar, Eliseo said. “One thing the Reserve Bank of Australia is definitely looking for is an orderly retreat in the Australian dollar. So they don’t want it to crash, but they definitely want to see a lower Australian dollar as does the federal government and many industries in this country,” he said. The move under $0.9000 “is proving a boon for Aussie gold investors,” he added. Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco . Read the latest news in gold and precious metals markets at Kitco News. By Debbie Carlson of Kitco News; dcarlson@kitco,
Posted on: Sat, 03 Aug 2013 10:41:22 +0000
Trending Topics
Recently Viewed Topics
© 2015