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Minutes from the Reserve Bank of Australia’s November board meeting show that a clear easing bias remains, but for now, the board is happy to monitor the effects of current policy settings.
While the board expects the economy to grow at a below-trend pace in 2014, the minutes state that growth could reasonably be expected to pick up thereafter.
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According to the minutes, “There was mounting evidence that monetary policy was supporting activity in interest-sensitive sectors and asset values, and given the lags with which monetary policy operates, the stimulatory effects would likely continue coming through for some time.
“It appeared likely that growth of the economy over the coming year would be below trend but that growth could reasonably be expected to pick up thereafter.”
The minutes stated that inflation remains well within the target area and appears to be of no concern in the short to medium-term.
The strength of the Australian dollar again appears most worrying, and the stubbornly high dollar could be the trigger for another rate cut.
The minutes stated, “The Australian dollar, while below its level earlier in the year, remained uncomfortably high.
“Members noted that a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy.”
In summarising its decision to hold rates steady in November, the board made note it is prepared to cut rates further should it feel the economy needs stimulating subsequently.
“The Board's judgement was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target”.
