MNI POLICY: Rates On Hold As RBA Balances Risk/Reward: Minutes

--RBA Notes Unknown Coronavirus Impact, Will Ease Further If Needed

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia kept policy unchanged in

February, balancing speeding progress towards inflation and employment targets

against the risks associated with lower rates, the minutes of the latest meeting

showed.

     Although risks were building, including the possible impact from the

coronavirus and the recent bushfires, the RBA saw some signs the slowdown in

global growth "was coming to an end" and that would help support domestic

growth.

     The central bank said that it was prepared to ease policy further to meet

its targets, noting financial markets were still (at the time of the meeting)

pricing in a further 25bps rate cut by mid-2020.

     Further cuts could make progress towards the RBA goals "more assured in the

face of current uncertainties", but rates are already low and that there were

still "long and variable lags" in the transmission of monetary policy through to

the wider economy, the minutes noted.

     Increased household debt helping fuel the ongoing recovery in house prices

in Melbourne and Sydney were an ongoing risk and the "incremental benefits of

further interest rate reductions needed to be weighed against the risks

associated with very low interest rates," the minutes said.

     Leaving rates unchanged at a record low 0.75%, the RBA noted slow and

gradual progress towards its key targets, despite ongoing weakness in household

consumption and private investment.

     Inflation is currently at 1.8% against the target range of between 2% and

3%, while unemployment is at 5.1% against a full employment target understood to

be around 4.5%.

     However, along with the recovering house prices, the main impact of lower

rates was the lower exchange rate, at its lowest since 2009, but the policy is

yet to flow through to spending, wages growth and investment.

     The RBA says it is still too early to assess the economic impact of both

the coronavirus outbreak and the bushfires that have devastated swathes of the

Australian landscape, although acknowledged the impact the virus would likely

have on China's economy and the flow through into the domestic economy.

     However, the impact from both was expected to have a short-term dampening

impact, and growth was expected to pick-up over 2020, with a forecast of 2.75%

over this year and around 3% in 2021, particularly as the reconstruction effort

following the bushfires was expected to be a positive in the second half of the

year.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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