RBA keeps cash rate cut door ajar

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Despite remaining unchanged since May, the Reserve Bank of Australia has not ruled out further cuts to the official cash interest rate.

Released this week, the minutes from the central bank’s December meeting show its board is still open to the idea of reducing the cash rate below 2% thanks to a current weak global inflation outlook.

“Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand,” the minutes read.

“The Board would continue to assess the outlook, and hence whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target.”

Within Australia, the RBA expressed some concern about wages, with growth remaining weaker than the bank would prefer.

“Wage inflation had remained subdued in the September quarter, consistent with spare capacity in the labour market and the forecast for a prolonged period of weak wage growth,” the minutes read

“The latest data suggested that wage growth had been little changed in the household services sector, where employment growth had been strongest.”

Outside of Australia’s shores, the board noted current economic conditions in Asia had been subdued.

“Members commenced their discussion of the global economy with the observation that growth in Australia's major trading partners had picked up in the September quarter, driven by an increase in growth in some Asian economies following weakness in the previous quarter.

Overall, however, conditions across the Asian region, including in China and Japan, had been weaker than expected this year.”

While the board noted there had been some improvements in China and Japan, economies across Asia could struggle for some time.

“In the rest of east Asia, GDP growth picked up in the September quarter after a soft June quarter outcome. Members noted that this stronger growth could reflect temporary factors and that weak external demand was likely to have negative effects on many economies in the region for some time.”

The Reserve Bank also noted sluggish growth in the US and European economies.

“Growth in the United States and the recovery in the euro area had continued. Core inflation had generally edged higher in both the advanced and emerging economies, but remained below most central banks' targets,” the minutes stated.

While the RBA may not have ruled out the chance of a rate cut, others believe the cash rate is likely to remain unchanged.

“I don’t think there’s any real sign at the moment that we’re likely to see a downward movement in the rate,” Joe Sirianni, head of mortgage broking firm Smartline, told Your Investment Property Magazine earlier this week.

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