The Reserve Bank of Australia has left the door open to the possibility of another cash rate cut.
Low interest rates are working to stimulate the economy but the Australian dollar needs to depreciate in order to achieve balanced growth, the RBA said in the minutes of its November meeting, when the board decided to leave the cash rate on hold at 2.5 per cent.
“The Board’s judgment was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target,” the board said.
The board said there was mounting evidence that monetary policy was supporting activity in interest-sensitive sectors and asset values, and would continue to for some time.
Inflation remained within the central bank’s target but the Australian dollar, while lower than earlier in the year, remained “uncomfortably high”, the RBA said.
“Members noted that a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy,” they said.
Recent economic data suggested the Australian economy was expanding at a below-trend pace, the RBA said.
But rebalancing of the economy from mining to non-mining investment would occur eventually.
“The revised staff forecasts suggested that growth in the near term would be constrained by the decline in mining investment, the high level of the exchange rate and weak public demand,” the minutes said.
Investment in housing was picking up, the RBA said.
“In time, non-resources business investment was also expected to increase given the low level of interest rates and recent substantial increases in measures of business confidence and conditions.
“Members noted that while the timing of investment upturns was very difficult to predict, it appeared likely that growth of the economy over the coming year would be below trend but that growth could reasonably be expected to pick up thereafter.”
The RBA said data showed growth of Australia’s major trading partners remained around its long-term average and was expected to be slightly above average next year.
