RBA leaves door open to August rate cut

The RBA has left the way open to a rate cut next month, saying it’ll review this month’s data to see if a change is needed.

Jobs and inflation figures will be key to the RBA’s next rates move.

The Reserve Bank of Australia has left the door open to a further cut in interest rates next month, saying it will review this month’s inflation, housing and employment data to assess whether a change in policy is needed.

In minutes of its July 5 board meeting, when official interest rates were left unchanged at a record low of 1.75 per cent, the RBA said it will review its economic forecasts in August, and this would also help to determine if its policy position needs adjusting.

The economic forecast revisions would be made available to the RBA board ahead of their official publication on August 5

“The board noted that further information on inflationary pressures, the labour market, and housing activity would be available over the following month,” the minutes said.

“Staff would provide an update of their forecasts ahead of the August Statement on Monetary Policy,” it added.

“This information would allow the board to refine its assessment of the outlook for growth and inflation to make any adjustment to the stance of policy that may be appropriate,” the RBA added.

The Australian dollar stumbled in volatile trade following the update.

At 11.50am (AEST), it traded at US75.20c, down from US75.45c just prior to the release.

In the immediate aftermath of the announcement it reached as high as US75.58c before traders were able to fully digest the central bank’s commentary and conclude the August board meeting was definitely “live”.

The RBA last cut interest rates in May following news of ultra-benign first quarter inflation. Second quarter inflation data next week is widely expected to be a trigger to a further cut in rates in August.

Recent events such as the UK’s planned exit of the European Union, and delays in moves by the US central bank to raise interest rates, have complicated the global backdrop.

Some economists have warned that there are risks associated with cutting interest rates amid recent signs that house prices are again rising, especially in major cities.

Recent employment data has been relatively solid, with job creation continuing and the unemployment rate hovering around two-and-a-half year lows. Still, the strong pace of job creation seen in 2015 had slowed considerably this year.

The RBA noted in the minutes that commodity prices were generally higher and that the Australian dollar was around the levels expected by economic forecasts published in May.

The RBA board appeared unworried by Britain’s decision to leave the European Union, saying the considerable financial market volatility caused by the referendum had since settled.

“This uncertainty was expected to have only a modest adverse effect on global economic activity,” the RBA said.

The central bank said markets were resilient throughout the episode, and the direct effect on the Australian economy was likely to be quite small.

With Daniel Palmer, AAP

Dow Jones