Australian central bank picked to leave interest rates alone

AAP

2 Jul, 2012 05:30 PM2 mins to read

Fears about weak growth in the local economy and turmoil on European markets prompted the RBA to drop the cash rate. Photo / Thinkstock

Australia's central bank cut interest rates in May and June, but is not expected to make it three in a row when its board meets today.

Fears about weak growth in the local economy and turmoil on European markets prompted the Reserve Bank of Australia (RBA) to drop the cash rate by half a percentage point at its May meeting, followed by a quarter point cut in June.

All 21 economists surveyed by AAP said they did not expect the RBA to cut again today.

Economists' expectations were centred on just one more cut this year, bringing the cash rate to 3.25 per cent.

AMP chief economist Shane Oliver said that a spate of strong data since the previous board meeting on June 5 may have changed the central bank's outlook on the domestic economy.

"I tend to think that because they cut at two meetings in a row, and because the GDP [gross domestic product] and April employment figures surprised on the upside.

"Right now they'd probably be inclined to sit back and wait and see," he said.

GDP in the March quarter was up 1.3 per cent from the December quarter for a rise of 4.3 per cent in the 12 months to March.

Employment figures were impressive also - with the number of people with jobs rising by 38,900 between April and May.

Although developments in Europe would remain a concern, the previous rate cuts could be seen as a buffer against any risk, Dr Oliver said. "To get them [the RBA] to cut again at this meeting would require far more uncertainty regarding the global backdrop - a complete breakdown in Europe - but we haven't seen that yet."

Commsec chief economist Craig James said that while June's rate cut was influenced by Europe, the RBA would be looking for information on domestic growth before moving again.

Deutsche Bank economist Adam Boyton said despite good GDP and jobs numbers, the Australian economy could still do with a nudge.