What were the main reasons behind today's rate decision?

The Bank noted that the easing in interest rates over the past 18 months was supporting interest rate sensitive areas of spending and this they feel, at this time, has provided sufficient stimulus to the domestic economy.

Are we likely to see further rate cuts this year?

The Bank has again highlighted that the inflation outlook may provide some scope for further easing of interest rates. Growth over the past year has been slightly below trend, and the Bank's outlook is for similar growth in the period ahead, this would appear to support the likelihood of further cuts overs over the second half of 2013. The question, as always, is the quantum and timing of such cuts.

We've seen the Australian dollar fall over the past month. What effect would even lower rates have on the Australian dollar?

The movement in the currency has not been driven so much by lower domestic interest rates but rather  a stronger US dollar. The AUD has shown repeatedly that the level of interest rates is having a decreasing impact
on the exchange rate, this in part may be due to the AUD's increasing status as a reserve currency. Still lower interest rates would certainly limit the upside potential for the currency.

In terms of assessing the value of the currency, the Trade Weighted value is more important that the headline AUD USD rate. In this context the TWI is almost 10% below its recent peak, while being about 5% below average level over the past 12 months. This in effect has a positive impact on domestic growth.

What are the RBA's concerns about the Australian economy? What can it do about these concerns?

The RBA remains alert to potential weakness in the domestic economy as it transitions from resources investment led growth to more broad based sources of growth. The Bank has noted that in the event the transition
requires further support , it has the capacity to further lower rates given the positive inflation environment and outlook.

What's the RBA's view on the Australian economy and its outlook?

The RBA appears to be watching the evolving transition in the economy closely. Changes in monetary policy have a noticeable lag until they have an impact on the broader economy (up to 6 months), as a result there may be times when more or less stimulus is required. The RBA is evaluating this option on an ongoing basis.


What is ING Direct's outlook for rates and the Australian economy?

Notwithstanding the recent depreciation of the AUD, it appears likely that the RBA will look to cut rates again in the 3rd quarter. At ING Direct we are starting to see improved demand for lending products from clients.
Importantly this is coming through the housing sector which has a large multiplier effect to the broader economy.

Although the investment phase of the resources boom is winding down, the volume effects of the increased productive capacity are increasingly coming on line, this will underpin national income growth. This production
has largely been sold forward via long term contracts, which effectively insulates these projects from commodity price volatility.

The global economy continues to recover and this will support continued growth in the Asian (China) and Australian economies.