Reserve Bank leaves door open to another rates cut

The RBA has kept the door open to cut the cash rate further, but the timing remains uncertain.

The RBA is assessing the impact of cuts in June and July. Picture: AFP

The Reserve Bank of Australia has kept the door open to cut interest rates further, but for now it is assessing the impact of cuts announced in June and July, while noting factors likely to support the economy going into 2020.

“Members would assess developments in both the international and domestic economies, including labour market conditions, and would ease monetary policy further if needed,” the RBA said on Tuesday in minutes of its September 3 policy meeting.

Weaker global activity, simmering trade tensions between the US and China, and soft consumer spending at home were the biggest risks to the outlook, the RBA said.

Still, stimulus is now flowing to the economy, and the RBA appears prepared to wait to see if it provides a sustained boost.

“The outlook for output growth was being supported by the low level of interest rates, recent tax cuts, signs of stabilisation in some established housing markets, and a brighter outlook for the resources sector,” it said.

House prices across Australia have risen over recent months, snapping a downturn that extended for close to two years. Still, the RBA will want to see a broader economic recovery beyond just a fresh surge in the value of houses.

The RBA lowered its benchmark interest rate in June and July, the first cuts since 2016, taking it down from 1.5 per cent to a record low 1 per cent. Financial markets are expecting further cuts, but economists admit the timing of those cuts is becoming less clear.

Some urgency to cut again may return if employment data for August on Thursday shows a rise in the jobless rate, an outcome the RBA would find hard to ignore.

The RBA repeated that it expects interest rates to remain low for a significant period of time.

“It was reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment,” the minutes said.

UBS said the minutes made a cut next month “live”.

Economist George Tharenou said the RBA’s initial announcement showed a dovish tilt, but today’s minutes added to the rate cut momentum, with easing bias “strengthened and more urgent”.

UBS expects the RBA to cut rates by 25 basis points next month, to 0.75pc, and again in February and May next year, but qualifies that an October cut is conditional on Fed and Bank of Japan easing this week and a soft labour market report on Thursday.

Meanwhile, Westpac chief economist Bill Evans noted that the RBA board acknowledged it was getting closer to its next move on policy.

He said a lack of reference to previous rate cuts in June and July dialled back the board’s emphasis on the need to wait, while repeated focus on the economy’s ability to sustain low rates mirrorred similar comments when the bank made cuts.

“Our central view that there is no reason to wait until November for the next move still seems reasonable,” Mr Evans noted.

RBC Capital Markets’ Su-Lin Ong maintained the next reduction will be in November.

“The timing, as always, is tricky with global developments keeping pressure on the RBA,” Ms Ong said. “However, we continue to favour November for the next move largely based on domestic considerations with domestic data, especiallythe policy sensitive numbers - confidence, lending, house prices - mixed.”

Dow Jones Newswires, AAP