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Ben Kingsley Blog post by Ben Kingsley

RBA Rates Decision – February 2012

The Reserve Bank of Australia (RBA) surprised the broader market this afternoon by leaving the cash rate at 4.25%. One would now expect a bit of media backlash towards the government and RBA for this decision in light of the recent media reports of major job losses in some sectors of the economy. Certainly expect to see the Retailer Association, Manufacturing Association, Housing Associations, Small Business Associations etc all make a further case for further reductions given the RB, in their view, is clearly out of touch with what’s happening at ground level within the economy.

What’s interesting in reading the RBA’s supporting announcement (click here to read) is their view is the economy is moving at trend growth levels and inflation is also within target range. This highlights an important point regarding the role the RBA plays with the cash rate lever within the economy. It’s a macro lever not a micro lever. It’s not the role of the RBA to release cash into the economy to help certain sectors out during tough times. Their role is clearly about putting the right balance into the broad economy to provide the best conditions to help deliver continued and sustainable economic development over the longer term.

Reducing the cost of money at this time, in the RBA’s view, may put unnecessary pressure on inflation, as property prices are stablising naturally and general conditions are considered manageable in their view. They note that in the event of further deterioration of global economies, this leaves them with further ammunition to reduce rates if required.

So the only silver lining for some, is for those travelling overseas, as this move supports a higher Aussie Dollar for now.

 

(Those people reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decisions about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)

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