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AU RBA ready to cut rates, hopes not to

Property Here - Tuesday, April 16, 2013

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THE Reserve Bank of Australia is ready to push interest rates lower if that's what the economy needs.

But the consensus at the central bank appears to be that there's a very good chance that the economy might be able to get by without it.

The key sentence from the minutes of the RBA's monthly board meeting on April 2, released on Tuesday, was a near word-for-word repeat from all post-meeting announcements and minutes this year.

"The outlook for inflation, as currently assessed, would provide scope for further easing should that be necessary to support demand," the RBA said in the minutes.

The background to that "leave-the-door-open" stance is an economy that grew below its normal pace through most of 2012 and is expected by the RBA to do that again in 2013 before return to "trend".

But the pluses and minuses are still set for a tense struggle over the coming year or so.

"Overall, recent data suggested that interest-sensitive parts of the economy were responding to the historically low levels of rates and it remained likely that this had further to run," the RBA said.

"At the same time, the factors weighing on the economy - including the high exchange rate, the waning growth of mining investment, and fiscal consolidation - were likely to persist.

"The key issues were what the balance of these factors would turn out to be."

By keeping the cash rate steady since its last cut to three per cent in December, and by the wording of its announcements since, the RBA has made it clear that it has strong hopes that the economy can "rebalance", as some economists put it, without further monetary stimulus.

And there's no doubt the RBA would dearly like to avoid more rate cuts, and the risk of asset market distortions - like housing price booms - they bring.

If the economy fails to show continued signs that it is on track for a return to trend growth, then rates will come down and the RBA will not hesitate if that time comes.

But there's no sign right now that the RBA is in any hurry to get down off the fence.



Read more: http://www.news.com.au/realestate/buying/rba-ready-to-cut-rates-hopes-not-to/story-fndban6l-1226621537850#ixzz2QagmQ6QS