Australia - the RBA, economy, A$ and shares

EDITION 4 – 9 February 2012

Summary

This note looks at the outlook for Australian interest rates following the RBA's meeting this week and the implications for Australian investments. The key points are as follows:

• While the RBA left interest rates on hold for the “moment” there is a strong case to ease further based on weak conditions outside mining and further tightening being delivered by the rising A$. Furthermore, monetary conditions are still tight particularly for small businesses. We expect another 0.25% to 0.5% in cuts by mid-year.
• The RBA’s somewhat tougher stance contrasts with the ongoing easing in monetary conditions being seen in the US and Europe. This will provide a further boost to the A$ and constrain the relative performance of Australian shares, even though the broader recovery in share markets is likely to continue.

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