The Reserve Bank of Australia (RBA) reviewed the case for a further reduction in the cash rate at its February policy meeting but considered the risks outweighed the benefits, minutes released on Tuesday showed.
This follows the meeting where the RBA left its benchmark cash rate at an all-time trough of 0.75% at its first meeting of the year and signalled the threshold was high to go even lower.
The case for further easing “rested largely on the only gradual progress towards the bank’s inflation and employment goals,” it said.
“The board concluded that the cash rate should be held steady at this meeting,” the minutes showed. Members agreed that an extended period of low interest rates would be required in Australia to reach full employment and achieve its inflation target. “The board would continue to monitor developments carefully, including in the labour market, and remained prepared to ease monetary policy further if needed…”
Helping the RBA's case, the unemployment rate dipped to 5.1% in successive months in December while latest data showed fourth-quarter inflation ticked higher too. The RBA Board cautioned the impact of the cornavirus was a "material" risk to China's economy, and thus to Australia's given extensive trade ties between the two countries.
Overall, the RBA remained upbeat about Australia’s A$2 trillion economy, saying accommodative monetary policy, a pick-up in mining and infrastructure investment and a rebound in home building would add to growth in the next couple of years,
- Board discussed case for easing, chose to hold given rates already very low.
- Board remained prepared to ease policy further if needed.
- Reasonable to expect extended period of low rates will be required.
- Further rate cut could speed progress toward jobs and inflation target.
- Needed to be balanced with risks from yet lower rates, including impact on savers.
- Risk easing could encourage more borrowing when home prices already rising strongly.
- Board to monitor developments carefully, including in labour market.
- Noted a$ was near its lowest level since 2009.
- Coronavirus new source of uncertainty for global economy, too early to judge impact.
- Coronavirus a "material" risk to outlook for china economy, and thus Australia.
- Economic drag from bushfires to be felt in q4 and q1, full recovery expected by year-end.
- Outlook remained for Australian economy to improve due in part to housing pick up.
- Consumption a key uncertainty, rising housing prices and turnover should support.
- Acceleration in wage growth would be welcome, though no pick up seen over next two years.
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