More hints from the Reserve Bank that another rate cut or two may be needed to shake the Aussie economy out of its current torpor.
The minutes from the Reserve Bank of Australia’s March 3 meeting suggest the central bank has another cut or more up its sleeve.
But it wants (as it usually does) to wait for new data to emerge before cutting again – and it also remains wary of further boosting the housing market, especially in Sydney (and to a lesser extent, Melbourne).
The Minutes said, “Members noted that the current setting of monetary policy had been accommodative for some time and that the recent reduction in the cash rate would provide some further support to the economy. They also acknowledged that a lower exchange rate would help achieve balanced growth in the economy.
“Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge."
That was before the meeting had voted not to cut rates for a second month in a row after the surprise chop in February.
Housing though remains the chief concern about another cut: "Risks in the household sector continued to be centred on housing and mortgage markets. The composition of these markets remained skewed to investor activity, especially in Sydney. Members noted that, at the margin, the recent decline in interest rates could boost the housing market, including prices,” the minutes said.
This quibble aside, it’s clear from the minutes the bank remains concerned the economy isn’t stirring from its current bout of sluggish, sub trend growth.
Wage growth is weak, inflation is low and not a problem, even in the foreseeable future, domestic demand remains weak and although the dollar has fallen, it’s not by enough to deliver a jolt to growth.
"The evidence suggested that labour market conditions were likely to remain subdued and the economy would continue to operate with a degree of spare capacity for some time. As a result, wage pressures were expected to remain contained and inflation was forecast to remain consistent with the target over the next year or so, even with a lower exchange rate," the minutes said.
Board members said the recent rate cut would provide further support to the economy and said, “Further easing over the period ahead may be appropriate to foster sustainable growth in demand”.
The RBA once again said it would work with other regulators to assess and contain risks that may emerge in the housing market, noting strong house prices in Sydney and Melbourne and growth in dwelling investment in the December quarter.
The minutes noted that risks were beginning to build in commercial property markets, including developers of residential and non-residential property. That is a key emerging concern fro the bank and other regulators.
