RBA Puts Interest Rates on Hold

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The emergence of China and India as global powerhouses has been a popular topic of discussion in the financial world of late. This was highlighted in a speech given by Glenn Stevens, the RBA Governor, in New York last month.

Analysts at The Australian Stock Investment Group believe the key theme for 2011 and 2012 is how Central Banks around the world will manage inflation

Speaking at the American Australian Association’s 2011 Annual Spring lecture, Stevens focused on the rise of China, and to a lesser extent India, as a “transformative event for the world economy”, changing the face of global production and consumption.

Niv Dagan, a Sales Trader at Halifax Investment Services, and an Australian Stock Investment Group affiliate, agrees with Stevens. He points to recent data coming out of China showing that their GDP grew at a rate of 9.75% last quarter, their Industrial Production is up 14.8% ad their Retail Sales in March were up 17.4%. Dagan believes this strength in the Chinese economy is indicative of inflation becoming a major problem. The Chinese Central Bank is lifting interest rates and lending provisions, in order to reduce inflation. And this, in turn, is “already having widespread implications for the Australian economy, given our large dependency on China,” says Dagan.

Analysts at The Australian Stock Investment Group believe the key theme for 2011 and 2012 is how Central Banks around the world will manage inflation, and what mechanics they will put into place. On 5 April 2011, the RBA left Australia’s official interest rate unchanged at 4.75%, and, as predicted by all but one out of 13 economists surveyed by AAP last week, the RBA decided to keep the cash rate on hold in their monthly board meeting today.

There was little in their statement to indicate that they are ready to raise rates yet, or that they saw a need to. However, Glenn Stevens also made it clear that “recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course”, and the RBA expects a gradual rise in inflation in the months to come.

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Richard White
The Australian Stock Investment Group
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