Reserve Bank of Australia governor Glenn Stevens has said interest rates are now likely to be on hold for some time, but the long-term outlook for the economy is good, indicating the next move for rates will be up.
“I feel that the current level is about right for the medium-term outlook we have,” Stevens told a parliamentary committee this morning.
Currently the interest rate is at 4.75%, and economists have predicted rates will be on hold until the second half of the year due to lower consumer confidence. However, Stevens also says the recent natural disasters won’t have a long-term effect on the economy.
“We do not think the effects on activity of these events will derail the expansion. Nor should the price effects pose a serious threat to the achievement of the medium-term goal for inflation, provided the community can understand their temporary nature and expectations of ongoing inflation remain well-anchored,” he said.
However, Stevens also said that global growth looks stronger with China and India sustaining their expansion plans, fuelling growth in commodity prices.
Su-Lin Ong, head of Australia strategy at RBC Capital Markets, told Reuters the remarks indicate rates will be on hold for some time.
“Clearly they’re very comfortable with the current policy setting and cash rate level, but the tightening bias is there,” she said.
“Given the market has got nothing fully priced in until September, October, it kind of does hint they may be on hold for a little bit longer.”
The Australian share market has opened flat this morning after a weak lead from the American stock market, where investors are still nervous about the future of government in Egypt.
The benchmark S&P/ASX200 index was down nine points or 0.19% to 4904.9 at 12.05 AEST, while the Australian dollar also fell but stabilised at $US1.
Commonwealth Bank shares gained 0.1% to $55.63, while NAB shares dropped 0.5% to $25.82. Westpac dove 0.4% to $24.14 as AMP shares also fell 0.6% to $5.41.
The Australian Competition and Consumer Commission has granted approval for Fletcher Building to purchase Crane Group for $797 million.
“Fletcher Building is pleased with the ACCC’s clearance of the transaction, which has satisfied a key condition of our offer to Crane shareholders,” chief executive Jonathan Ling said in a statement.
“This is a very positive sign and we expect many investors will take their lead from their support of the offer.”
American stocks performed well overnight but eventually fell after Egypt president Hosni Mubarak said he would not step down, but would instead delegate powers to the vice president. However, protests have continued, meaning there will be instability in the region for some time.
The Dow Jones Industrial Average 10.6 points or 0.09% to 12,229.19.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
