Australia central bank holds rates, opens door to easing

Tue Apr 3, 2012 1:09am EDT
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By Wayne Cole

SYDNEY (Reuters) - Australia's central bank opened the door wide for a rate cut in May even as it held rates steady at 4.25 percent at a review on Tuesday, saying it wanted to see coming inflation data before deciding whether to ease policy.

The Australian dollar slipped as the Reserve Bank of Australia (RBA) sounded a more cautious note on the economy, acknowledging that growth had disappointed.

"The Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy," said RBA Governor Glenn Stevens in a short statement.

The steady outcome had been expected by all the economists polled by Reuters, but many felt the statement showed a clearer easing bias, conditional only on inflation proving tame.

The key consumer price report for the first quarter is due on April 24 and is generally expected to show underlying inflation remained comfortably within the RBA's long-term target band of 2 to 3 percent.

"The tone was definitely dovish," said Matthew Johnson, a senior economist at UBS. "A cut in May looks pretty likely based on the fact we don't see all that much inflation pressure in the economy."

"They have downgraded their domestic growth outlook. Their view on the economy has changed."

The market seems to agree, with interbank futures implying a near-100 percent probability of a cut in May.   Continued...

'For lease' signs hang above shops along a high profile fashion retail strip on Oxford Street in Sydney April 3, 2012. REUTERS/Tim Wimborne