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Published August 11, 2013

If one takes as reference the latest wording applied at the Quarterly Statement of Monetary Policy published late last week, one may notice a subtle change in narrative, with the central bank tweaking the old line "inflation gives room to cut rates further" for a new and less dovish "rates will be adjusted as needed", which implies there might be more options on the table depending on the next barrage of economic releases published in the country.

For now, RBA Chief Stevens and other Board members appear keen to support the idea of taking the foot off the accelerator, pause and stay on a 'wait and see mode' to assess whether or not the economy shows signs of being re-stimulated, on a combination of lower interest rates (currently at 2.5% historic lows) and a much cheaper currency.

As cited by James Glynn at WSJ, quoting last week's RBA Monetary Policy Statement: “On the domestic front, there are risks to both the downside and upside for economic activity and inflation. There remains considerable uncertainty about the process of economic growth rebalancing away from mining investment towards other sources of domestic demand and to exports.”

In view of Eamonn Sheridan, Editor at Forexlive, "the future path for interest rates in Australia is, as always, data-dependent", adding that "if the ‘transition’ (from mining investment to other sectors of the economy) slows, or does not produce economic growth sufficient to propel employment gains then its back to the chopping board for the bank (inflation allowing, of course)."

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