RBA Saw No Pressing Case for Australian June Rate Cut
Australia’s central bank didn’t see a pressing case to cut interest rates from a 49-year low two weeks ago, saying the effects of previous reductions and government spending will take time to emerge.
“Maintaining the current stance of monetary policy for the time being would be consistent with fostering sustainable growth and low inflation,” policy makers said in minutes of the bank’s June 2 meeting released in Sydney today.
Reserve Bank Governor Glenn Stevens left the overnight cash rate target at 3 percent for a second month ahead of a report showing Australia joined China and India as one of the few economies to expand last quarter. The central bank has scope for “some further easing of monetary policy if that were needed” to spur growth, according to the minutes.
The minutes confirm “an easing bias, but the details hint at a Reserve Bank that has shifted to the sidelines for the foreseeable future,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “We think the cash rate has troughed.”
The Australian dollar rose to 79.19 U.S. cents at 12:21 p.m. in Sydney from 78.92 cents before the minutes were released. The yield on the two-year government bond gained 1 basis point to 3.78 percent. A basis point is 0.01 percentage point.
Reports published since the meeting showed employers fired fewer workers than estimated in May, consumer confidence jumped the most in 22 years, business sentiment had the biggest gain since 2001 and home-loan approvals rose for a seventh month.
Economy Grows
Gross domestic product unexpectedly grew 0.4 percent in the three months through March 31 after contracting 0.6 percent in the fourth quarter, the government reported on June 3. Economists forecast a 0.2 percent decline.
While Australia’s economy is experiencing a “downturn,” there are signs it is “less severe than in most other countries,” the minutes said. “The outlook was for a fairly gradual expansion getting underway later in the year, with spare capacity tending to increase and inflation tending to decline.
“Recent information had not led to any downward revision to the outlook; if anything, some indicators had been on the stronger side,” the bank said.
To cushion the economy against the worst global slump since the Great Depression, Stevens cut the overnight cash rate target by a record 4 cash til payday loans.25 percentage points between September and April.
Scope to Cut
The government in February also began distributing more than A$12 billion ($9.5 billion) in cash handouts to consumers. Treasurer Wayne Swan said last month he will spend another A$22 billion on roads, railways, schools and ports.
“Indications were that these policies were having some impact, though the full effects would take time yet to be seen,” the minutes said. The bank’s current policy setting also leaves “adequate flexibility to respond to developments as needed over the period ahead.”
Speculation that Stevens will raise interest rates over the coming 12 months climbed last week on signs the economy is strengthening, according to a Credit Suisse Group AG index.
Investors expect Stevens and his board to raise the benchmark interest rate by 58 basis points in the next 12 months, the index showed at 12:18 p.m. in Sydney. At the start of June, traders tipped 3 basis points of cuts. The index was unchanged after today’s minutes were published.
Rising Currency
“People are jumping to pretty aggressive rate hikes by the first half of 2010, and I don’t think that’s what the Reserve Bank are thinking of at the moment,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney.
Today’s minutes suggest “rates won’t rise anytime soon,” Redican said. And “they are still reiterating that they can cut rates further if the economy needs it.”
The Australian currency’s recent appreciation, particularly against the U.S. dollar, has “reduced the stimulus to the economy coming from the earlier depreciation,” today’s minutes said.
Australia’s dollar climbed about 7 percent against a trade- weighted basket of currencies in the month prior to the June 2 meeting, the Reserve Bank said.
Much of the increase came during offshore trading sessions, suggesting that currency movements reflected “changes in sentiment toward the U.S. dollar and risk appetite more generally, rather than any specific reassessment about Australia’s economic prospects,” the minutes said.