Nothing new from the June Reserve Bank board meeting minutes released yesterday.
The bank remains cautious on both the economy and the future direction of interest rates, according to the minutes. The bank sees the economy growing at its current sub 3% annual rate for a while yet and it remains ready to cut rates, but not just yet.
But then we have known that for quite a while, especially after the details of the sluggish growth in the March quarter national accounts released at the start of this month.
The exchange rate remains a concern for the bank, but only because it hasn’t fallen as much as it would like. But that’s been a concern for over six months as well.
“Interest rates had declined further as a result of the board’s decision at the May meeting. The exchange rate had also depreciated noticeably, though it remained at a high level considering the decline in export prices that had taken place over the past year and a half,” the minutes said.
Current weak inflation pressures allows the bank scope to cut, if it sees the need, but there seems to be a touch of hesitancy about the need for a another cut soon.
5Y Interest Rates – RBA holds fire at record low of 2.75
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But there is a feeling the bank is waiting for the last four to six months of the year when the economy will be at more risk of a further downturn because of the slide in commodity prices, especially iron ore.
“It was possible that the exchange rate would depreciate further over time as the terms of trade declined, which would help to foster a rebalancing of growth in the economy,” the RBA said in minutes of the meeting released today.
“The board also judged that the inflation outlook as currently assessed might provide some scope for further easing, should that be required to support demand.”
Markets took the obvious lesson from the minutes that another rate cut could happen and sold off the Aussie dollar which fell under 95 US cents last night where it remained this morning.
The ASX fell 11 points in a pretty lacklustre day of trading.
The RBA said past interest rate cuts (from November 2011) were starting to have an effect on the housing sector.
‘‘Building approvals for both higher-density and detached dwellings had increased over recent months,’’ the RBA said.
"Also, loan approvals had grown more strongly in recent months, including for new housing, and auction clearance rates were well above average in Sydney and had picked up to be a bit above average in Melbourne.’’
But growth is still at below trend pace but said it had scope to give the economy a boost with more rate cuts if required. The bank says that the current monetary policy stance was "appropriate for the time being".
