(This is an excerpt from an article I originally published on Seeking Alpha on October 16, 2012. Click here to read the entire piece.)
Tonight, the Reserve Bank of Australia (RBA) released its minutes for its October 2nd meeting where it cut interest rates 25 basis points to 3.25%. I was looking for a more detailed justification of the rate cut…{snip}
The RBA seemed to base its decision more on external developments than internal ones. {snip}
The RBA almost seems to be saying that it is willing to tolerate a little higher inflation than target in order to provide a pro-active cushion for domestic demand. {snip}
What IS certainly clear from the minutes is that the RBA notably downgraded its assessment of the commodity-driven portion of the economy while at the same time projecting a soft landing.
{snip}
The RBA’s commentary on the non-mining sectors expressed no alarms, certainly nothing that, under normal circumstances, would suggest yet another rate cut would help. The weakest portion of the non-mining economy appears to be construction although sentiment in the housing market has improved:
{snip}
While the RBA continues to fear that Europe’s sovereign debt crisis is “…likely to present large downside risks to the world economy for some time,” the RBA also noted no significant stresses in financial markets.
So, overall, I did not get the sense of urgency that I would expect for a central bank that has decided to restart a rate-cutting process. {snip}
Of all the borderline reasons the RBA provided for dropping rates again, “the market told me to do it” appears the most convincing to me. I am also assuming that the RBA thinks moving toward those low rates will finally pressure the Australian dollar (FXA) lower. {snip}
Source: FreeStockCharts.com
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on October 16, 2012. Click here to read the entire piece.)
Full disclosure: net neutral on the Australian dollar