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




The bank left the cash rate at 2.75% today as it believed that the stance of monetary policy remains appropriate for the time being. The easing of this policy over the last 18 months has supported the interest rate sensitive areas of spending, and is beginning to have a depreciating effect on the Australian dollar. Both outcomes will help foster a rebalancing of growth in the economy which, given the subdued inflation outlook, allows the current accommodative monetary stance by the Bank to be maintained.
 


2. Thoughts on what the move will be next month and why? 




As above, the board believes that the inflation level has been consistent with the medium term target and expects this to remain so over the next year or two. Given this accommodation and its desire to see further revaluation in the Aussie Dollar to assist growth, the ING DIRECT view - as well as the market more broadly -  is to see the easing of monetary policy continue. This has been reinforced further as the economy continues to adjust to lower levels of mining investment, and a path to rebalanced, broad-based growth is sought. More importantly, the timing and magnitude of these cuts is still debatable, with the key indicators of monthly unemployment and quarterly inflation expected to give further direction to us in these areas this month.
 


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




The RBA appears to be indicating a desire for a stable growth transition in the Australian economy. Its current stance with monetary policy and with further accommodations, understood to be a possibility, should assist the economy more broadly as the effects of the ‘once-in-a-century’ resources boom begin to taper. Further, the board believes that their monetary stance will also help lower the Aussie Dollar. If this were to continue towards long-run averages, and more in line with the trend in our terms of trade, other non-mining sectors of the economy would be expected to benefit and assist more broad based growth over the medium term. The board have also stressed in other announcements the importance of a strong commitment to fiscal responsibility by government. With funding initiatives that the community appears to want, creating significant challenges and therefore a requirement of prudent supervision is needed over the medium term.
 


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




As with the last update, and notwithstanding any further rapid depreciation of the AUD, it appears that the RBA is likely to act on monetary policy through a cut in the 3rd quarter this year. At ING DIRECT the improvements in demand for lending products from clients has been continuing. This demand is primarily through the housing sector which is expected to have a more tangible multiplier effect to other areas of the economy. As monetary policy tends to have a noticeable lag in effectiveness, particularly in the housing sector, we are only beginning to see the expansionary nature of this more recent RBA policy trend.
 


We will continue to watch these developments in the economy as the growth transition begins to unfold. This watching brief also extends to the global economy more broadly which appears to be on a continuing recovery path. This has been highlighted more recently by the changing stance of the US Federal Reserve with regard to the expected timing of a transition away from their Quantitative Easing (QE) measures. If their growth forecasting is accurate, as well similar outcomes in other economic centres more broadly, will see support of continued growth in demand for both Asian (China) and Australian economies.