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

The RBA noted in its decision that the outlook for the global economy had improved over the Christmas period. This improved sentiment, together with the rate reductions over the second half of 2012 have provided the necessary stimulus for the domestic economy. The Bank indicated there was sufficient momentum in the economy at the present time. Notwithstanding the decision today, the Bank indicated that the most recent inflation reading provided scope for further adjustment of monetary policy should circumstances dictate.


What effect did global issues (US, China and Europe) have on the rate decision?

To the extent that the tone in offshore markets has improved over the summer, the RBA took this as a positive indicator of domestic prospects over the near term. However, events in the past few days  ( possible change of governments in both Spain and Italy), indicates the fragile nature of the European recovery.

What is ING Direct's prediction for further rate cuts/rises over the this year?

Given the improved sentiment in both onshore and offshore markets, it is likely the cash rate may be nearing, (if not already at), the low point in the current cycle.
The announcement late last year that the Government was moving away from its balanced budget objective indicates that the previous pressure on monetary policy has eased, with scope now available for fiscal policy to provide stimulus to the economy.

Will the Australian dollar remain high for some time?

The AUD has been stubbornly locked in a narrow range just under 1.05 for an extended period. Given global interest rates remain at around zero, the attraction of AUD fixed income investments remains. In addition, improving global prospects will underwrite ongoing demand for Australian resource related exports. Further, the additional productive capacity that has been built up in the resources sector over the past few years is now coming on stream.
These factors combined will underpin the AUD in the near term.


What is your outlook for the economy?

The domestic economy appears to have commenced 2013 in a positive mood. A combination of offshore events, led by equity prices, stronger domestic equity prices and the improving tone of the housing market is expected to see business and consumer confidence improve over the next few months.
 
This is a key turnaround for the economy; and to the extent this continues over the next few months the overlook for the domestic economy has also improved.
 
The impact of the early announcement of the election date is a potential unknown, although, hopefully this will not derail activity in the domestic economy.