Subdued household spending and lower than expected inflation influenced the Reserve Bank's decision to leave interest rates on hold at 4.75 per cent, minutes from RBA February 2011 meeting reveals.
Despite Australia's terms of trade going upwards inflationary pressures didn't build up in Australia as under normal circumstances. Consumers and borrowers are still aware of the effects of GFC. They also got "a gift" in a form of double home loan rate increase from the banks last time RBA raised rates to 4.75% in November. The stance now is - "keep saving". That means Australia's economy is balancing itself out to relieve medium term inflationary pressure:
At the same time, however, the evident caution in household spending would, if it persisted, reduce the pressure on prices that might normally be expected in an economy with very strong terms of trade and limited spare capacity.
The RBA also feels that policy decisions won't be affected by the short-term supply shock to the economy resulting from the flooding and cyclone. The disasters are expected to slow growth in the first half of 2011, but the economy is then expected to storm back in the second half as a mining investment boom and fresh spending on reconstruction to counteract on GDP growth and inflationary pressure.
But most importantly RBA believes that lower than expected inflation outcomes provide "additional time for the Board to asses at future meetings the evolving balance of risks". So no interest rates rise in the near future.