There was a note of surprise as the board of the Reserve Bank decided to leave interest rates unchanged at 4.25% during their first meeting of 2012.
Reserve Bank Governor Glenn Stevens referred to progress in Europe, growth in the US and China, and stable underlying inflation as positive signs for confidence in the domestic and global economies.
"With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy", Mr. Stevens said.
Actions of Eurozone leaders, including the efforts of Greece to arrange a bailout, had alleviated some of the worst financial pressures on European banks as 2011 drew to a close, the committee noted. As a result, financial market sentiment has seen signs of improvement, though funding costs have since increased.
Retailers reported a mixture of surprise and disappointment at the decision. "Retailers were hoping for some respite from today’s interest rate decision and with inflation under control believed the conditions were ideal for a reduction in interest rates", said Australian Retailers Association Director Russell Zimmerman. CommSec economist Craig James considered the rate hold as very poor judgement on the Reserve Bank’s part.
Though consumers may deem the decision as a favourable one for the ‘Big-Four’ Australia banks, the pressure to maintain profits may initiate a wave of competitiveness – another factor that may have influenced the Reserve Bank’s hand. NAB has announced its intention to keep home loans below rivals throughout 2012. Legislation passed last year allows consumers to transfer home loans swiftly and without financial penalty.
Retailers, then, will already be looking to March for a stimulatory boost, though a strike of mortgage competitiveness could also offer welcome benefits should more money return to the pockets of conservative consumers.
Savers, meanwhile, have a little longer to secure better savings account rates before pressure from the flagging retail industry becomes a priority in the Reserve Bank’s decision-making.
Ashley King
