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RBA minutes show little taste for a new rate cut

Reserve Bank of Australia
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Reserve Bank of Australia

Australia's central bank said a subdued inflation outlook meant there was scope to ease monetary policy further if needed, but appeared to set a high bar for such a move as interest rates were already "very low".

In minutes of its Nov. 3 policy review, the Reserve Bank of Australia (RBA) said a weaker currency and strong employment growth in the services sector suggested that the "prospects for an improvement in economic conditions had firmed a little over recent months."

"Taking the above information into consideration, members decided that leaving the cash rate unchanged at this meeting was appropriate," the minutes said. The cash rate has been at a record low of 2 percent since the last cut in May.

"They judged that the inflation outlook may afford some scope for further easing of monetary policy, should that be appropriate to lend support to demand."

The RBA said it still expects the overall economy to strengthen gradually over the next two years as the drag on growth from falling mining investment waned and activity in other sectors picked up.

"However, members recognized that there was still evidence of spare capacity, including the relatively high unemployment rate, low wage growth and the lower-than-expected inflation outcome in the September quarter," the central bank said.

"In these circumstances, members judged that monetary policy needed to be accommodative."

The RBA said a recent increase in home loan rates by some lenders, including Australia's big four banks, amounted to only a slight tightening in financial conditions, which on the whole remained accommodative.

On external risks, the bank highlighted slowing growth in Asia and particularly China, the country's biggest export market, saying this trend was likely to be more persistent than expected.

It noted the outlook for the Asian region was one of the key uncertainties in forecasting global growth.

"The Board would continue to assess the outlook, and whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target," the minutes concluded.