SYDNEY: Australia’s central bank believes a cut in interest rates would be “appropriate” should inflation stay low and unemployment trend higher, though there was still no strong case for a move in the near term.
The Reserve Bank of Australia (RBA) also sees the likelihood of a higher cash rate in the near-term as low, marking a dovish turn in policy compared to last month when it saw the risks for rates to move in either direction as more evenly balanced.
Minutes of its April policy meeting released yesterday showed members acknowledged the effect of an even lower cash rate on the economy could be smaller than in the past given high household debt and crumbling property prices.
“Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure,” the minutes showed.
The dovish slant sent the Australian dollar down a third of a US cent to the day’s low of US$0.7140.
The change in the RBA’s language also lengthened the odds for an easing later this year with a full 25-basis-point cut expected by October.
“The minutes of the RBA’s April meeting suggest that it won’t take much for the bank to cut interest rates,” said Marcel Thieliant, Singapore-based senior economist at Capital Economics.
“We expect the RBA to cut the cash rate to 0.75 percent by early next year, starting in August.” - Reuters