Aussie down as RBA leave rates on hold
1 July 2008
The Reserve Bank of Australia decided to leave the cash rate unchanged at 7.25%.
The RBA said there had been a substantial tightening in financial conditions since the middle of last year which were working with other factors, such as rising fuel costs, to restrain demand. The board said in their statement that “indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly.”
The board continues to believe that demand growth will be moderate this year, despite noting the considerable uncertainty which remains about demand and inflation.
The statement said, in the short term inflation is likely to remain high and the CPI is likely to be boosted by rises in global oil prices. In the long term, as long as demand continues as expected, inflation in both CPI and underlying terms should decline.
As such the Australian dollar ended the session down nearly 1% against the U.S. dollar as the market now seems convinced that 7.25% should prove to be a peak in the current cash rate cycle.