The Bank of the Australian Reserve (RBA) published the minutes of its MONETARY POLICY meeting of May on Tuesday, highlighting that the Board decided that the case for a 25 basic points cut (PBS) was more solid and that it preferred a cautious and predictable policy.
Additional conclusions
The Board considered to keep the rates without changes, cut in 25 PBS or 50 PBs.
He decided that the case for a 25 PBs cut was more solid, preferring a cautious and predictable policy.
Inflation is not yet at the midpoint of the objective range, the labor market is still adjusted.
The Board agreed that the developments in the domestic economy alone justified a rate cut.
Progress in inflation meant that politics did not need to be so restrictive.
Some downward risks that the consumption of domestic households may not recover.
A larger movement could offer more protection against adverse global scenarios.
The US trade policy was a significant and adverse development for global perspectives.
The Board was not convinced that 50 PBS were needed, US tariffs had not yet affected the Australian economy.
It would be a challenge for companies and homes if it had to be revealed aggressive loosening.
The Board judged that it was not yet time to move monetary policy to an expansive environment.
An expansive policy may be necessary if global commercial scenarios materialized.
Politics is well positioned to respond decisively if international developments justify it.
Market reaction to the minutes of the RBA meeting
At the time of writing, the AUD/USD is negotiating 0.19% lower in the day, quoting at 0.6483.
RBA FAQS
The Bank of the Australian Reserve (RBA) sets interest rates and manages Australia’s monetary policy. The decisions are made by a advice of governors in 11 meetings per year and in the necessary emergency meetings that are necessary. The main mandate of the RBA is to maintain price stability, which means an inflation rate of 2%-3%, but also “… contribute to the stability of currency, full employment and economic prosperity and the well-being of the Australian people.” Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian dollar (AUD) and vice versa. Other RBA tools are the quantitative relaxation and hardening of monetary policy.
Although traditionally it has always been considered that inflation is a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross -border capital controls. Moderately high inflation now tends to take the central banks to raise their interest rates, which in turn has the effect of attracting more capital of world investors who are looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data calibrates the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contraction economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment and surveys about consumer feeling can influence the AUD. A strong economy can encourage the Bank of the Australian Reserve to raise interest rates, also supporting the Aud.
The quantitative easing (QE) is a tool used in extreme situations in which to lower interest rates is not enough to restore credit flow in the economy. The QE is the process by which the Bank of the Australian Reserve (RBA) prints Australian dollars (AUD) in order to buy assets – normally State or business bonds – to financial institutions, thus providing them with the liquidity they need so much. The one usually translates into a weaker audience.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the Bank of the Australian Reserve (RBA) buys state and business bonds from financial institutions to provide liquidity, in QT the RBA stops buying more active and stops reinvesting the main one that expires of the bonds it already has. It would be positive (or bullish) for the Australian dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
