The RBA just reiterated that interest rates in Australia can fall again

Getty/Scott Olson

The RBA has again highlighted that it stands ready to cut rates in Australia if it sees the economy slowing down.

That’s the clear message the market took from the statement by governor Glenn Stevens after Tuesday’s board meeting and the all important penultimate paragraph of the overview to the latest quarterly Statement on Monetary Policy today.

The RBA highlighted that its earlier rate cuts are working hand in hand with the lower Australian dollar and that the economy is improving. They also noted that this improvement is across a broader part of the economy. That’s good news.

But the RBA also highlighted that there is still enough slack in the economy if rates need to fall and inflation isn’t an issue they need to consider.

Here’s what they said:

The Reserve Bank Board reduced the cash rate by 25 basis points at its February meeting and then again at its May meeting. These and earlier reductions, and the depreciation of the exchange rate since 2013, are working to support economic growth. This is evident in a range of indicators, including employment growth, job vacancies, surveys of business conditions and trade data. At the November meeting, the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that it was appropriate to leave the cash rate unchanged. At the same time, the Board recognised that the economy is likely to be operating with a degree of spare capacity for some time yet and noted that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.

Of course the key words here are also “should that be appropriate”. That implies the RBA has a watching brief. but it also has a clear bias to ease.

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