Cash Rate Update – December 2014

The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.50%, marking the first full calendar year on record without adjustment.

Australia’s economic outlook has not changed significantly over the past month and despite the slump in the dollar in November the TD Securities/Melbourne Institute monthly inflation gauge rose just 0.1%, as increases in the price of fruit and vegetables were offset by lower commodity prices.

The global economy outlook has also seen little variation over this recent period. The US economy is recovering, albeit very slowly. Chinese economic growth is modest and much of Europe continues to be of concern with high unemployment and a looming risk of deflation. The unstable situation in Eastern Ukraine together with the efforts to combat ISIS in Iraq and Syria continue to pose threats to the recovery of the world economy.

It is clear that the RBA will prefer to wait for positive signals on the domestic and global outlook before raising the cash rate, an outcome not expected until the second half of 2015.