RBA the odd one out on rates

THE Reserve Bank is pondering whether to take its foot off the policy brakes at a time when most of its rich-world peers are desperately trying to find an accelerator for their sputtering economies.

Seeking to head off inflationary pressures, the Reserve Bank of Australia (RBA) has kept rates at 4.75 per cent for almost a year, a level it terms "tighter than normal".

But a darker economic outlook abroad and downward revisions to core inflation at home have led the RBA to flag the prospect of a cut in rates. In this case, it is not so much a question of whether the economy requires stimulus but whether it still needs to be restrained.

"They must be wondering whether policy needs to be on the tight side of neutral given everything that's happening globally," said Brian Redican, a senior economist at Macquarie.

Slower world growth is a potential pot hole for a small open economy like Australia that relies heavily on exports of commodities such as coal and iron ore.

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Topics:  economy global financial crisis reserve bank of australia

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