(Australian Associated Press)
The Reserve Bank board acknowledged there was a compelling case for cutting the cash rate to a new record low before leaving it unchanged at 0.75 per cent at this month’s meeting.
Minutes from the RBA’s meeting on November 5 showed board members poured over the disappointing data piling up at its door, including declining retail sales, a weaker outlook for household income and wages, and that inflation and GDP growth had both come in below forecast last year.
However, members agreed that further evidence on spending by households was required before drawing any conclusions about the effectiveness of its three rate cuts since June or government tax rebates.
“Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags,” read the minutes released on Tuesday.
Economists said it was now a question of how long the board believes it should wait to cut next.
The ASX rate indicator shows a 78 per cent chance that the rate – one of the key determinants of nationwide borrowing costs for consumers and business – will be slashed to a new low of 0.5 per cent in December.
With no board meeting scheduled for January, a fourth cut in nine months at the February meeting is almost fully priced in.
ANZ economist David Plank said a move in December was unlikely to be forced by October’s dismal unemployment figures – given members’ focus on delayed data – while the latest retail and GDP data only arrive after the next board meeting.
NAB economist Kaixing Owyong said the evidence of economic stagnation was building, and as such the RBA should bring forward the next cut to December, lest it risk a longer period of subpar outcomes.
“Our view remains that the RBA should act more quickly, a view reinforced by the fact that the RBA weighed up the case for easing further this month,” Ms Owyong said.
Members judged that – while the board’s three 25-basis-point cuts since June had helped lower the exchange rate, lift asset prices and deliver higher cash flows for borrowers – savers and confidence had been hurt.
They also discussed the possibility that a further reduction in interest rates could have a different effect on confidence than in the past, when interest rates were at higher levels.
The Australian dollar fell on the release of the minutes from 68.06 US cents to a four-day low of 67.90 US cents by 1200 AEDT.
The minutes follow last week’s call by deputy governor Guy Debelle for patience on monetary policy.
Philip Lowe’s deputy told a Sydney audience on Friday that, despite disquiet over sluggish retail activity, rising unemployment and stagnant wage growth, it was too early to judge the impact of this year’s three cash rate cuts.
“We started with an interest rate reduction in June, and here we are in November … (so) the most recent data we have at best is for October, so not much time has gone past,” Dr Debelle said at a Financial Services Institute of Australasia event.
The minutes showed board members noted wages growth would not likely accelerate beyond recent subdued forecasts, reflecting the views of most firms in the RBA’s liaison program.
Weaker September quarter retail volumes suggested to the board that consumption growth was likely to have remained stagnant despite government’s tax offset payments and its rate reduction in October.
Members blamed the near-term consumption downgrade on the effects of the drought on farm incomes and the downturn in housing construction on related businesses.