By Marty Silk
(Australian Associated Press)
The Reserve Bank is prepared to cut interest rates if inflation remains sluggish over the next year or two.
The central bank, earlier in April, held the cash rate at a record low of 2.0 per cent, the rate it’s been at since May 2015.
In the minutes of its April board meeting the Reserve Bank indicated interest rates were at the right level amid a slowing labour market, a rising Australian dollar and low global inflation.
“Given these conditions, members assessed that it was appropriate for monetary policy to be very accommodative,” the minutes, released Tuesday, said.
The RBA downplayed the recent fluctuations in the labour market, saying slower jobs growth was expected following strong gains in the second half of 2015 and that it was noticeably stronger than one year ago.
However, it wouldn’t hesitate to cut rates in future if a subdued jobs market, combined with low global inflation and a high Australian dollar, kept inflation low for the next year or two.
“Continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand,” the minutes said.
JP Morgan economist Ben Jarman said the statement showed the RBA was focused on far more than just the domestic factors when determining interest rates.
“Stable rates, in this context, implies more accommodative policy, which is needed to offset global disinflationary forces,” he said in a note.
ANZ’s head of Australian economics Felicity Emmett said the central bank’s upbeat economic outlook indicated there wouldn’t be a near-term rate cut.
“The strength in the very recent data would leave the Reserve Bank comfortable that the non-mining recovery had continued to gain traction over the past few months,” she added.
CommSec economist Savanth Sebastian said even “super low inflation” and a strong dollar may not be enough to trigger a future rate cut.
“However it (the RBA) would need to feel confident that a rate cut would have the desired impact in driving the Aussie dollar lower,” he said.
“Most central banks that have eased monetary policy in the past few months have seen their currency continue to strengthen.”