MNI POLICY: RBA Open To Further Rate Cuts: Minutes

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.

     --EASE IF NEEDED

     "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%.

     --WAGES

     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

Australian dollar.

     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: les.commons@marketnews.com

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