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By Lachlan Colquhoun
SYDNEY (MNI) - The Reserve Bank of Australia sees an extended period of low
interest rates and is prepared to cut again to support economic growth,
according to the Minutes from the August 6 policy meeting.
The RBA also reviewed the implementation of "unconventional monetary
policy" measures in advanced economies over the last decade, from negative
interest rates through to foreign exchange intervention and the purchasing of
private sector assets.
While a "full evaluation" could not be undertaken as many of these measures
were yet to be unwound, the Board noted that a "package of measures tended to be
more effective than measures implemented in isolation."
The RBA kept rates on hold at a record low 1% in August after two
consecutive cuts of 25 basis points in June and July.
While judging that it was appropriate to leave rates on hold, the Minutes
show that the Board maintains a dovish outlook in response to over capacity in
the domestic labour market and sluggish inflation growth.
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"Members would consider a further easing of monetary policy if the
accumulation of additional evidence suggested this was needed to support
sustainable growth in the economy and the achievement of the inflation target
over time," the Board minutes said.
"Members judged it reasonable to expect that an extended period of low
interest rates would be required in Australia to make sustained progress towards
full employment and achieve more assured progress towards the inflation target."
Australia's unemployment rate is currently at 5.2% and has remained stable
in recent months despite the addition of another 41,100 jobs in July. The
participation rate continues to climb and is at a record 66.1%, while
underemployment -- the percentage of employed people who want to work more hours
-- is at a high 8.4%.
The RBA Minutes note that there are "few signs" of pressure for wage
increases, but anticipates a "slow decline" in the unemployment rate to around
5% "over the following couple of years."
On inflation, which currently sits at 1.6%, the Board noted "few signs of
inflationary pressure". The RBA forecast is for inflation to rise to just over
2% - and into the target range of 2% to 3% - by 2021.
The Board judged that risk to growth were "tilted to the downside" in the
medium term, but more balanced in the long term as it anticipated the
stimulatory impact of previous rate cuts, government tax cuts, and a lower
The Board noted that although borrowing costs were at "historically low
levels", demand for credit - particularly among investors in the housing market
- was subdued and access to credit remained tight.
On the global situation, the Board acknowledged the downside risks to the
global growth outlook as a result of "uncertainty around trade policy", which
was having a negative impact on investment.
"Members noted that, against this backdrop, the low inflation outcomes in
many economies provided central banks with scope to ease monetary policy further
if required," the Minutes said, before noting that further global monetary
easing was "widely expected."
--MNI London Bureau; tel: +44 203-586-2225; email: email@example.com