RBA Signals Further Rate Cuts

The Reserve Bank of Australia has signalled further interest rate cuts may be needed to help rebalance an economy that is struggling to grow.

The Reserve Bank signals further rate cuts

The Reserve Bank signals further rate cuts

Minutes from the RBA's April board meeting show the central bank is holding open the door for a further interest rate cut after surprising financial markets twice in two months by keeping the official cash rate steady at 2.25 per cent.

"Further easing of policy may be appropriate over the period ahead to foster sustainable growth in demand and inflation consistent with the target," the RBA minutes, released Tuesday, said.

According to the minutes, the RBA justified its decision to keep rates steady in April by saying it wanted to assess more economic data, including inflation trends, before taking further monetary action.

“[The board] saw advantages in receiving more data, including on inflation, to assess whether or not the economy was on the previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year,” the minutes said. 

Tomorrow's release of official inflation figures is expected to show that falling petrol prices slowed the inflation rate to 0.2 per cent in the March quarter, for an annual rate of 1.3 per cent -- down from the previously reported rate of 1.7 per cent.

The board also discussed strong housing market activity, but noted that there had been little change to market conditions, or to credit growth, in early 2015. 

“Recent data on loan approvals suggested that growth in housing credit was likely to continue at this pace, but not accelerate, in the months immediately ahead,” the minutes said.

In a speech at a conference hosted by Goldman Sachs in New York overnight, RBA governor Glenn Stevens reiterated that further rate cuts remained on the table, as the inflation outlook was expected to stay benign.

Mr Stevens said the booming Sydney property market got far too much attention, after two years of double digit home price growth in Sydney heightened fears of a property bubble, proving to be a perceived deterrent to cutting record low interest rates.

But Mr Stevens said Sydney remained an outlier while prices in other capital cities remained under control.

He also said the Australian dollar had further to fall, despite its recent trading range roughly between US78c and US76c.

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Source: Business Spectator