Weekly Market Commodity Report week commencing 30th Jan

Last week’s release of the quarterly CPI data revealing no change (i.e. 0%) from the previous quarter (0.6%) has led commentators to believe the RBA is now certain to cut interest rates next week - but don’t be so sure. If I recall, the December decision to cut was, “finely balanced”, and the decision is no easier this time around.

Reasons for a cut:

• The Australian economy has deteriorated a little since the last meeting, by way of lower employment numbers and the two-speed economy;
• High profile groups such as the World Bank and the IMF have warned of the risks of a “calamitous type crash in 2012”; and
• Domestic inflation now appears to be in check.

Reasons to wait:

• The ECB has managed to avert a credit crunch via their long term loans at 1%;
• The US economy has perked up with better economic data and more confidence in the financial markets; and
• Asia has started to relax monetary policy and hence avoid a hard landing.

The deciding factor is likely to come down to what we don’t get to see, namely, the results of the surveys and liaison the RBA conducts with the business community.  If there is a cut, attention will turn to how much the banks pass on to (lending) rates given the continued talk of their high borrowing costs.

Click here for this week’s treasury commentary. 

Regards

_____________________________________________________________ 

Rudy Boeff

Treasurer | Rural Bank Limited

T (08) 8425 4914 | M 0439 500 180 | F (08) 8211 9014

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