RBA holds rates but upbeat about economy, aussie still falls

The Reserve Bank of Australia held its monthly policy meeting on Tuesday and announced its decision to keep interest rates on hold at 2 percent. But the central bank remained a bit upbeat on the domestic economy and again noted that low inflation leaves scope to cut rates. It mentioned that it is now on alert for the impact of global gyrations.

Somewhat in contrast, last year, the savage sell-off in Chinese sharemarkets was some three months old before the RBA noted the volatility it had caused. It countered that other equity markets had been relatively stable.

But now, with Chinese growth confirmed to have slowed in 2015 and capital flight also posing a risk, the issue looks to be one worth raising early.

The RBA’s more upbeat tone on the domestic economy late last year had many market watchers thinking, probably rightly so, that the bar for further rate cuts had been raised. That view is still maintained in today’s statement, but the central bank looks to now be hedging its bets in case of external events.

Still, the Australian dollar has since weakened 0.7 per cent to $0.7067.

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