NOTHING TO SEE HERE: RBA Minutes Say Further Rate Cuts Are Possible, But Not Imminent

The Reserve Bank of Australia has released minutes of its August meeting, signalling that future rate cuts are possible, but not imminent.

The board noted that Japan was improving and US economic recovery had continued at a moderate pace, but Chinese economic growth was slightly below target, and was “unlikely to pick up much, if at all, in coming quarters”.

Domestic activity was subdued – although the housing sector was improving – and the RBA’s outlook for employment and GDP fell slightly, as noted in its Statement on Monetary Policy earlier this month.

The board noted that the market had priced in a 25 basis point cut in August – in line with its decision that brought Australia’s cash rate to a historic low of 2.5%.

From the minutes, released today:

Members noted that there had already been a substantial easing of monetary policy over the previous 18 months.

At recent meetings the Board had held the cash rate steady, but had judged that the inflation outlook might afford some scope to ease policy further, should that be necessary to support demand.

The forecasts for this meeting suggested no lessening of that scope, but did show a weaker outlook for activity overall. The course of the exchange rate would be important.

It had declined since the previous meeting, though remained high by historical standards. It was possible the exchange rate would decline further over time, which would assist in rebalancing growth in the economy, though it would also be affected by developments in other countries.

On balance, with growth expected to remain below trend for longer and inflation to remain within the target even with the effects of a lower exchange rate, members concluded that a lower level of the cash rate would better contribute to achieving sustainable growth in demand consistent with the inflation target.

Regarding the communication of this decision, members agreed that the Bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further.

The Board would continue to examine the data over the months ahead to judge whether monetary policy was appropriately configured.

The AUD ticked up slightly to $US0.9116 before the minutes were released, but fell to $US0.9081 by noon.

The minutes are here.

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