RBA on hold but on alert for global cracks

04_RBA on hold but on alert for global cracks

By Lucy Hughes Jones

(Australian Associated Press)

The Reserve bank seems heartened by the improving local economy but may still deliver an interest rate cut amid global financial turmoil.

The central bank’s first board meeting of the year left the cash rate at an all-time low of two per cent, where it has stood since May 2015.

In the minutes of the February meeting, released on Tuesday, the RBA said subdued inflation may pave the way to lower the cash rate if it needed to jump start the economy.

“The board noted that the outlook for continued low inflation may provide scope for easier monetary policy, should that be appropriate to lend further support to demand,” the minutes said.

The RBA indicated that local labour market numbers will be paramount going forward, as will any negative feedback from the current ruckus on overseas markets.

Members said deteriorating sentiment stemmed from uncertainty about the outlook for global economic growth.

Much of the fears arose as markets began to lose faith in central banks around the world and their capacity to respond effectively to challenges they faced, the board said.

On the other hand, the bank seems encouraged by the improving tone of local economic figures like employment growth, ANZ co-head of Australian economics Felicity Emmett said.

Low interest rates, lower petrol prices and increasing employment have also enticed Australian households to spend and invest in housing, the bank noted.

But ANZ says the RBA’s forecast for consumer spending growth to lift to three per cent or above is overly ambitious.

“(Especially) in an environment of low wage growth, slowing house price growth, and skittish consumer confidence,” Ms Emmett said.

She said housing and net services exports are the RBA’s top picks to support the recovery in non-mining activity this year.

“(But) we continue to see the risks tilted towards lower rates,” Ms Emmet said.

“We expect that later in the year, ongoing low inflation and softening demand conditions are likely to push the RBA over the line.”


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