Finance Finance News Low rates may not be enough: RBA

Low rates may not be enough: RBA

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The Reserve Bank says it is difficult to judge whether low interest rates will be enough to offset the effect of budget cuts and mining investment slowdown.

In the minutes of its July board meeting, the RBA said low interest rates were working to support demand but expressed concern about whether that would be enough to offset economic challenges.

“The board judged that it was prudent to leave the cash rate unchanged,” the RBA said in the minutes, released on Tuesday.

“Low interest rates were working to support demand, but members agreed that it was difficult to judge the extent to which this would offset the anticipated substantial decline in mining investment and the effect of planned fiscal consolidation.”

The RBA left the cash rate unchanged at a record low 2.5 per cent in July.

The RBA repeated its familiar line that the exchange rate remained high by historical standards.

The Australian dollar was “therefore offering less assistance than it otherwise might in achieving balanced growth in the economy,” the RBA said.

The RBA said mining exports were expected to continue growing in coming quarters, but at a slower pace than in the March quarter, with GDP growth forecast to be a little below trend over the next year.

“Accordingly, with the significant degree of monetary stimulus already in place to support economic activity, the board judged that, on present indications, the most prudent course was likely to be a period of stability in interest rates,” the RBA said.

There had been an improvement in non-mining sector activity, the RBA said.

Non-mining business investment was picking up gradually and forward-looking indicators suggested strong growth in residential construction ahead, the RBA said.

The labour market was also improving although recent forward-looking indicators had been mixed and “consistent with only moderate growth in employment”.

Household consumption growth also appeared to have eased, the RBA said.