SYDNEY: Australia’s central bank says it remains more cautious than the market about the prospects for further policy easing, after it cut interest rates for the first time in over four years last month.
The Reserve Bank of Australia (RBA) cut interest rates by a quarter-point to 4.1% at its February meeting, with the board saying it did not want to lag other central banks that had already eased.
Market positioning currently implies a 65% probability the bank will cut again at its May policy meeting, with traders expecting a third cut by the end of the year.
In a speech in Sydney yesterday, RBA assistant governor Sarah Hunter reiterated recent remarks by the bank’s top policymakers that the market remained over-optimistic about the prospects for further rate cuts.
“As the governor and deputy governor have both indicated recently, the February decision reflected a judgement by the board that it was the right time to take some restrictiveness away, but the board were more cautious than the market about prospects for further easing,” said Hunter, who heads the central bank’s economics unit.
Governor Michele Bullock and her deputy Andrew Hauser have both said in recent weeks that the bank does not believe a series of rate cuts will be required.
However, there remained a high degree of uncertainty about the RBA’s central forecasts, Hunter said, with the board paying close attention to the knock-on impact of policymaking by the United States.
“One of the things we are focused on right now is US policy settings, the impact of these on the global economy and how this flows through to activity and inflation here in Australia,” she said.
The US Federal Reserve releases projections this week that will provide the most tangible evidence yet of how US central bankers view the likely impact of Trump administration policies that have clouded a previously solid economic outlook.
Turning to Australia, Hunter said a pick-up in household consumption in the December quarter was not a temporary bounce caused by seasonal spending but reflected “a genuine improvement in underlying momentum”. — Reuters
