MNI POLICY: Stagnating CPI, Jobs Could Justify Rate Cut: RBA

By Lachlan Colquhoun

     SYDNEY(MNI) - Minimal inflation growth and an increase in unemployment

would create conditions in which it would be "appropriate" to cut Australian

interest rates, although there is no strong case for a near-term adjustment in

monetary policy, according to minutes from the Reserve Bank of Australia's board

meeting earlier this month.

     At its meeting on April 2 the RBA kept rates unchanged at a record low

1.5%, but minutes from the meeting published today show the Board discussed a

scenario in which it might make a move on rates.

     While outlining the conditions for a rate cut, there was no mention of

conditions for a rate hike, which was the Bank's likely next move for most of

last year.

     "Members also discussed the scenario where inflation did not move any

higher and unemployment trended up, noting that a decrease in the cash rate

would likely be appropriate in these circumstances," the minutes said.

     "They recognised that the effect on the economy of lower interest rates

could be expected to be smaller than in the past, given the high level of

household debt and the adjustment that was occurring in housing markets."

     The Australian Bureau of Statistics releases Labour Force data next week

and inflation the week after that, meaning that the RBA will have fresh data on

both of its critical metrics before its next interest rate decision on May 10 -

one week before a national election on May 18.

     The minutes show the bank still believes that the "central scenario was for

further gradual progress" to be made on both employment and inflation, along

with a pickup in household disposable income.

     "Given this outlook for further progress towards the Bank's goals, members

agreed that that there was not a strong case for a near-term adjustment in

monetary policy," the minutes said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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