Reserve Bank Of Australia Hints At Further Rate Rises

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The Reserve Bank of Australia was happy to take a wait and watch stance in February's monetary policy meeting, the minutes of the meeting released on Tuesday showed.

Members of the Reserve Bank Board saw the decision to leave the cash rate on hold at 3.75% to be "finely balanced" but signaled towards a resumption of the monetary tightening cycle if conditions widely evolved as expected.

"Members expected that, if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary," the minutes said.

"But they did not regard the outlook as requiring an increase in every meeting, and they saw the earlier moves to begin withdrawing stimulus promptly as affording the board a degree of flexibility in its subsequent decisions."

"This allowed the possibility of waiting to receive some more information on how the economy was responding to the monetary tightening that had already occured. Such a course would also allow time to monitor events overseas."

The board said that the three rate hikes in late-2009 combined with the widening in margins between the cash rate and many lending rates, had already caused a material adjustment to the stance of monetary policy.

Members judged that monetary conditions were no longer "exceptionally accommodative", though the structure of interest rates was "still somewhat below average".

Developments in the global financial markets were generally positive over the past two months, the board noted, although uncertainty remained over the pace of growth once the effects of stimulus faded out.

The central bank also kept an eye on the debt crises afflicting Greece and some other European economies and noted that spreads on the Republic of Ireland's debt had narrowed following the announcement of significant cuts to public spending.

On the domestic front, the members saw a strengthening labor market, although reports about household spending had been mixed in January and December.

The members saw some tentative signs that parts of the housing market were seeing the effect of the decline in assistance to first home-buyers and higher interest rates, although higher-end housing values were continuing to increase.

Inflation would be consistent with the target over the next year or so, the bank said, noting that forecasts were for further declines in the year-end rate of underlying inflation.

The Reserve Bank of Australia became the first major central bank to raise interest rates in the aftermath of the global financial crisis. It remains the only central bank in the Group of 20 nations to have hiked rates.

Meanwhile, the results of a survey showed that business confidence in Australia rebounded strongly in January even as the business conditions index recorded a sharp fall.

The National Australia Bank said on Tuesday that its business confidence index stood at 15 in January, up from 8 in December. The result largely reverses December's 11 point fall.

However, the business conditions index fell to 3 from 10 reflecting large declines in the trading conditions and profits sub-indices, NAB said.

The Reserve Bank of Australia was happy to take a wait and watch stance in February's monetary policy meeting, the minutes of the meeting released on Tuesday showed. (Market News Provided by RTTNews)