RBA Reviewed Case for Further Rate Cut, Worried About Borrowing

Tuesday, 18 February 2020 08:02 WIB

RBABank Sentral Australia,Reserve Bank of Australia


Australia’s central bank reviewed the case for a further interest-rate cut, but decided against it in order to avoid encouraging additional borrowing as house prices climb, minutes of its Feb. 4 meeting in Sydney showed.

The Reserve Bank also expects the coronavirus outbreak to “subtract from growth in exports over the first half of 2020,” the minutes released Tuesday showed. It acknowledged it was “difficult to assess potential indirect effects on activity” from the epidemic and devastating wildfires over summer as data were yet to be published.

Yet while maintaining an easing bias and reiterating its expectation rates were likely to stay low for “an extended period,” the bank retained a broadly upbeat view of the economy’s prospects. The RBA eased policy three times last year to a record-low 0.75% and kept rates unchanged two weeks ago.

“The outlook for the Australian economy was for growth to improve, supported by a turnaround in mining investment and, further out, dwelling investment and consumption,” the bank said. “In the short-term, the effects of the bushfires were temporarily weighing on domestic growth, but the recovery was likely to reverse the negative effects on GDP.”

While the RBA persisted in its longer-term view that consumption would eventually pick up following rate cuts, tax rebates and a lift in house prices, it noted few near-term positive signs.

“The prolonged period of slow growth in income was expected to continue to weigh on consumption over coming quarters,” the bank said. “Furthermore, recent data had suggested that households were directing more income to saving and reducing their debt.”

The central bank forecasts little movement in wages growth and sees unemployment holding in its recent range. It noted that jobs growth in the final quarter of 2019 was all part-time and sees weaker hiring in the first half of this year based on leading indicators and slower near-term economic growth.

Source : Bloomberg




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