TH: Stronger growth lowers odds on interest rate cut
INVESTORS have reined in their bets for a cut in interest rates next month, after the Reserve Bank said the rate reductions it began last year were starting to reignite economic growth.
Despite continuing pessimism about the global economy, minutes from this month's RBA board meeting said it left rates on hold because the economy had ''a little more momentum than had earlier been indicated''.
With official rates cut by a ''material'' 1.25 percentage points since November, members of the Reserve's board saw ''no need'' for cutting this month.
In response to the comments, the implied market probability of a rate cut next month fell from 61 per cent to 46 per cent, according to Credit Suisse figures.
The dollar also jumped by three-quarters of a US cent to US102.97¢.
Although the Reserve said inflation appeared to be ''contained'', major bank economists predicted it would take more than just a low consumer price index, to be released next week, to spark a rate cut in August.
ANZ economists Craig Michaels and Justin Fabo said the bank appeared to be in ''wait-and-see mode'' and could stay on hold for several months.
''Barring calamitous developments in Europe, the RBA appears likely to leave interest rates on hold for at least the next couple of months as it assesses the impact of earlier policy easing on the domestic economy,'' the economists said.
Treasurer Wayne Swan said the minutes confirmed the economy was riding out turmoil overseas.
''Despite global headwinds, the high dollar and structural changes under way, the Australian economy is in a league of its own,'' Mr Swan said.
In another positive sign, Australia's busiest container port in Melbourne said it had experienced a 9.1 per cent surge in trade in 2011-12, to 87 million revenue tonnes.
Despite the Reserve's more positive comments, however, analysts continue to fret over risks to the world economy.
Adrian Blundell-Wignall, a former Reserve official, yesterday warned that the Chinese economy might be suffering from a massive over-investment boom.
The inflow of foreign direct investment into China over the past decade might be over-invested, he said.
