Australian Dollar Outlook improves as RBA leave Australian Interest Rates Unchanged

Australian Dollar Rate Outlook

THE Reserve Bank of Australia left the interest rates unchanged in February so it could assess the impact of earlier rate rises from both itself and the big banks on the domestic economy. The central bank board surprised financial markets by leaving the overnight cash rate steady at 3.75 per cent earlier this month.

"In considering the level of interest rates, members noted that the three increases in the cash rate late in 2009, together with the widening in the margins between the cash rate and many lending rates, had meant a material adjustment to the stance of monetary policy," minutes from the board meeting released today said.

"Members judged that monetary conditions were no longer exceptionally accommodative, though the structure of interest rates was still somewhat below average." The RBA had lifted the cash rate by 25 basis points at each of its meetings in October, November and December to its current 3.75 per cent.

The board noted the decision to leave the cash rate unchanged was "finely balanced" - as it also was at the December meeting - but its members expected further rate increases if the economy continued to improve as predicted.

"But they did not regard that outlook as requiring an increase at every meeting, and they saw the earlier moves to begin withdrawing monetary stimulus promptly as affording the board a degree of flexibility in its subsequent decisions," it said.

"This allowed the possibility of waiting to receive some more information on how the economy was responding to the monetary tightening that had already occurred.

"Such a course would also allow time to monitor events overseas."

The bank said most market participants had expected the cash rate to rise this month, but board members had decided the "stronger case" was to leave the cash rate unchanged.
Market economists had widely expected a quarter of a percentage point rise to 4.0 per cent on February 2.

"This decision would be accompanied by communication that, if economic conditions evolved broadly as expected, further adjustments to policy would probably be needed over time to ensure that inflation remained consistent with the target over the medium term," the minutes said.

The RBA uses monetary policy, or interest rates, to keep inflation within a target range of two to three per cent over the economic cycle. Headline consumer price inflation (CPI) was 0.5 per cent in the December quarter for an annual rate of 2.1 per cent, recent official data show.
Underlying inflation, the RBA's preferred measures as it removes volatile items, was 0.6 per cent in the December quarter, while the annual rate was 3.4 per cent - still above the bank's target range.

"Members noted that the forecasts were for further declines in the year-ended rate of underlying inflation, though the expected trough in inflation had been revised up slightly," the RBA said.

In its quarterly statement on monetary policy released on February 5, the RBA forecast underlying inflation to fall within its inflation target in the first half of 2010.

To read more please visit www.news.com.au

Pounds to Australian Dollars = 1.7611

Euros To Australian Dollars = 1.5350

Australian Dollars to US Dollars = 0.8909

Australian Dollars to New Zealand Dollars = 1.2550

Bye For Now

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Commonwealth enjoys massive windfall as it declines to lift deposit rates

Australian Dollar Rate Outlook

FIRST it was home buyers getting slugged - now it's those of us lucky to have a few Australian dollars to tuck away in a deposit account.

A decision by Commonwealth Bank bosses to keep rates low has delivered a massive windfall - a $2.94 billion half-year profit.

While its competitors were quick to lift deposit rates in a bid to attract customers, the CBA maintained ultra-low rates until the final weeks of the first half of 2009-10. "If you're a CBA shareholder you'd be delighted with the result, but if you're a CBA customer you'd have to be asking yourself if they're providing you with the best possible service," said Choice spokesman Christopher Zinn.

He said savers should shop around: "The banks are fully cognisant that a lot of people just roll over and don't move to take better rates." Figures released by the CBA showed its docile depositors did not move their money into better-paying accounts at rival banks. CBA chief executive Ralph Norris was coy when asked about the windfall reaped from lazy depositors. Asked about the stickiness of so-called "dumb money", Mr Norris said: "There is a proportion of our funds which is less rate-sensitive. that gives us an advantage."

Mr Norris indicated, however, that the bank would soon move to make its transaction and online saver accounts more competitive. CBA, Australia's largest bank, paid a measly average of 2.73 per cent on the $78 billion in its term deposit accounts, almost half what it paid a year ago.
Its plethora of transaction account holders only received a yield of 1.32 per cent on a total of $69 billion, again about half the average rate paid 12 months ago.

The Commonwealth Bank's half-year accounts also show it has been relatively kind to its home loan customers, despite instances of the bank lifting its standard variable rate higher than the Reserve Bank's cash-rate increases.

To read more please visit www.news.com.au

Pounds to Australian Dollars = 1.7611
Euros To Australian Dollars = 1.5350
Australian Dollars to US Dollars = 0.8909
Australian Dollars to New Zealand Dollars = 1.2550

Bye For Now

IMS Foreign Exchange

Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money Australian Dollars?

Contact IMS Foreign Exchange + 44 207 183 2790