The central bank seems content to keep rates on-hold for some time as it assesses global uncertainty and domestic inflationary pressures, economists say.
The minutes of the Reserve Bank of Australia’s (RBA) September 6 board meeting showed the bank was still taking a wait-and-see approach.
The minutes showed the bank was still concerned about inflation locally but that it was closely watching developments in overseas markets.
JP Morgan economist Helen Kevans said the minutes didn’t offer too many surprises.
“Although officials are very uncertain about the near-term outlook for global and domestic growth, they’re still forecasting that in the medium-term, the Australian economy will grow at or above trend and that inflation will be a big concern,” Ms Kevans said.
She said JP Morgan was still forecasting the next move in interest rates to be up.
“Given global financial uncertainty and concerns about the global growth outlook, the RBA will probably be on the sidelines until next year.”
The RBA board, at its September monthly monetary policy meeting, chose to keep the benchmark cash rate at 4.75 per cent, where it’s been since a hike from 4.5 per cent in November 2010.
The Australian dollar rose around half a US cent shortly after the minutes were released at 1130 AEST.
Westpac chief economist Bill Evans said the minutes showed that the RBA was moving towards a neutral policy stance from one that had a bias towards raising the rate.
He is still predicting there will be a cash rate cut in December.
“We were given some encouragement that for the first time since 2009 some consideration has been given to at least the availability of flexibility to cut rates,” Mr Evans said.
“The reason behind that interpretation is that the final sentence in the minutes refers to “current setting of monetary policy left the Board well placed to respond to evolving global and domestic economic conditions.”
“In short there is very little evidence to support the tightening bias which has now been abandoned and the final wording in these minutes gives the Board flexibility to cut rates at any time.”
Mr Evans said the pace of deterioration of the global economy and the local labour market has been more rapid.
He said this was a key reason why Westpac in July was the first major institution to predict there would be a cut in the cash rate.
“The RBA has moved a long way very quickly over the last few months and will probably require more time before it sees the need to ease policy,” he said.
“However to our mind a very convincing case has already been established to justify the beginning of an easing cycle.”
CommSec chief economist Craig James agrees about the neutral policy stance.
“Rates appear set to remain on hold for a number of months to come,” he said.
“The Reserve Bank Board remains firmly on the interest rate sidelines.
“With all manner of diverging trends, board members don’t appear to be entirely comfortable at present, wondering just what is the right move at the current time.”