Australia May Cut Rates Again

The benchmark bond yield of Australia is currently offering the smallest premium over the US notes in the last 11 months. The sharpest predicted growth slowdown in the last 4 years for Australia is spurring the bets of possibility of interest rate cuts in future. On 17th May, the 10-year rate was at 3.17%. The similar dated treasuries were at 1.88%. On 14th May, the gap actually touched 1.27 percentage points, marking the least value of the same since 4th June. On this month, Australian Dollar, the major currency of Australia, has declined against most of its major peers. Many investors are afraid that as the growth is slowing down in China, the demand for Australian commodities will weaken in near future as well.

The Governor of the Reserve Bank of Australia, Glenn Stevens on 7th May gave indication that he sees scope for further reductions after lowering the key rate to a record figure of 2.75%. Some of the policy makers of the Federal Reserve have already mentioned that the same may start to slowdown the monthly bond buying worth $85 billion as there are signals that the largest economy in the world is gaining strength.

According to the Bond Investor at Mizuho Asset Management, Yusuke Ito, the Central Bank of Australia will continue with the easing policy. Ito added that China is slowing down and their dependency on the external demand is getting reduced. China is more dependent on the consumption now and this by no means, is going to help Australian economy.

The inflation outlook has been lowered by the policy makers of Australia on this month as they are predicting that the consumer prices will increase by 2% in this year. The earlier estimate was of a consumer price increase of 3%. The predicted growth for 2013 has also been set to 2.5%, a percentage point less than what was the growth for the last year, marking the sharpest decline in real growth in the last 4 years.

Australian Dollar, also known as Aussie has trimmed by 5.5% since 30th April and it is currently valued at 97.34 US Cents. It is all set to experience the steepest monthly decline in this year. According to the Senior Currency Strategist of Royal Bank of Scotland, Greg Gibbs, Aussie is a good option to express that the growth of China has weakened.

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