8 Aug 2011

Caution rules at RBA

7:14 am on 8 August 2011

The Reserve Bank of Australia is being very cautious amid high quarterly inflation numbers at a time when the downside risks to the domestic and global economies are increasing.

Radio New Zealand's Sydney correspondent reports that while national income is growing strongly due to the commodities boom, the high Australian dollar is putting a squeeze on the economy outside resources.

For those reasons, the RBA last week left the official cash rate unchanged at 4.75% for a ninth month.

Some market commentators insist that with the labour market tight and inflation pressures worsening, the RBA is still more likely to raise rates in the coming months.

But the futures market says otherwise and is gambling that the next move is down.