Reserve Bank Governor Plays Down Cash Rate Cut

In an article for the website abc.net.au, Michael Janda sheds light on how the Reserve Bank Governor Glenn Stevens chose to address a few key financial aspects. He suggested that the dollar was running pretty close to the intrinsic value (based on economic fundamentals) but some adjustments still required being made.

Cash rate stable…effect on dollar

Mr. Stevens seems to be at a crossroads in that he does not want to make a cash rate cut this February but believes that unless this is done, dollar may not reach a favourable mark vis-a-vis US dollar. The Governor believes that further rate cuts would boost real estate and opined that sustained improvement in housing prices are better than erratic or frothy markets bursting at their seams.

Financial System Inquiry

Mr. Stevens praised the recommendations made by the Financial System Inquiry, suggesting that it is important for the major banks to hold substantial capital in a bid to outsmart any ‘bad loan’ scene. Australians believe that their big banks are prepared for any contingency and that they are failure-proof so it is important, cited Mr. Stevens, that reality meets with public assumption- and hence the talk about holding capital.

Sloganeering by politicians

The Governor also felt that the politicians had to do more than sloganeering if they had to have a desired effect in terms of implementation of the Federal budget.

You can read the original article here.

Many financial experts who were bullish about a February rate change have gone volte-face on their remarks; what with Mr. Stevens playing down any such move. It remains to be seen how the Governor chooses to look at the crux question- dollar value- now that he has decided to keep cash rate unchanged in February.