The Reserve Bank left its cash rate at a record low of 2% for the second month in a row yesterday, but has left the door open for another rate cut. But that is highly unlikely at this stage.
RBA governor Glenn Stevens made it clear in his post-board meeting statement that after cutting rates in May, the central bank could see no reason to again change the cash rate.
In fact the statement was little changed from the one issued after the June meeting.
The events in Greece and the eurozone, and the plunge in Chinese sharemarkets didn’t mention.
Mr Stevens said that while the Australian dollar had fallen against the US dollar, it has not dropped as much against other currencies.
He made it clear the bank wanted to see more of a fall, saying a further depreciation in the currency seems “both likely and necessary” given the significant fall decline in key commodity prices.
The move was widely anticipated by financial markets and economists and the Australian dollar traded little changed at around US74.73c after the announcement at 2.30pm.
“The board today judged that leaving the cash rate unchanged was appropriate at this meeting," Mr Stevens said.
"In Australia, the available information suggests that the economy has continued to grow over the past year, but at a rate somewhat below its longer-term average. The rate of unemployment, though elevated, has been little changed recently. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate,” the statement read.
"In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with stronger borrowing by businesses and growth in lending to the housing market broadly steady over recent months.
"Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have been supported by lower long-term interest rates.
“Information on economic and financial conditions to be received over the period ahead will inform the board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target,” the statement concluded, as it did at the end of the June meeting,” Mr Stevens added.
Economists say there’s just a hint of a possible further rate cut if needed. But that was more to keep nervous markets happy than reality after the bank surprised the markets by removing that sort of phrasing from the post May statement when it last cut rates. That saw the value of the Aussie dollar jump back above 78 US cents.
