Finance Finance News RBA open to more rate cuts

RBA open to more rate cuts

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The Reserve Bank remains open to further interest rate cuts, despite concerns about booming house prices in Sydney and Melbourne.

The RBA cut the official cash rate to a historic low of two per cent on May 5, and the minutes of that meeting, released on Tuesday, reveal it has not ruled out further moves.

Sluggish business investment and slowing Chinese growth were cited as key concerns.

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The central bank said its failure to provide guidance when it cut rates on May 5 didn’t limit “the board’s scope for any action that might be appropriate at future meetings”.

This follows comments from RBA deputy governor Philip Lowe on Monday that the central bank still has scope to move on rates, if necessary.

The RBA said it also considered the “risk that low levels of interest rates could foster imbalances in the housing market” when cutting on May 5.

Despite concerns about booming home prices in Sydney and Melbourne, it went ahead with the cut after “members saw much more muted trends in other capital cities”.

The minutes show rising house prices won’t stop the RBA from again cutting rates, if economic conditions decline, JP Morgan economist Ben Jarman said.

“We expect the RBA to stay on hold, though as today’s communications make clear, if the real economy underperforms, housing market exuberance will not at this stage hold back the board from cutting again,” he said.

UBS economist Scott Haslem said the RBA was keeping its options open, but he doesn’t predict a cut in the near future.

“While we think the RBA will maintain a mild easing bias for at least six months we don’t think they will act on that bias,” he said.

In the minutes, the central bank also pointed to a gloomier economic growth forecast than was predicted in February as a contributor to the rate cut.

On the plus side, the RBA said it thought lower interest rates would boost household demand, which would flow through to more investment by firms.

The RBA also said unusual trading in the Australian dollar immediately prior to the board’s February, March and April decisions was the result of “normal market operations”.


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