Aussie Weakens after RBA Minutes Revealed Policymakers Discussed Cutting Rates

The minutes showed that policymakers saw a marked slowdown in the Australian GDP that offset the sustained labor market growth. The minutes also revealed that policymakers expect inflation to remain muted for some time. Additionally, the minutes disclosed the RBA discussed interest-rate cuts at its April board meeting and concluded there was “not a strong case” for an adjustment in the near term.
James Hyerczyk
Reserve Bank of Australia

The Australian Dollar edged lower shortly after the Reserve Bank released the minutes of its April meeting at 01:30 GMT that indicated a dovish tone in the policy review.

The minutes showed that policymakers saw a marked slowdown in the Australian GDP that offset the sustained labor market growth. The minutes also revealed that policymakers expect inflation to remain muted for some time. Additionally, the minutes disclosed the RBA discussed interest-rate cuts at its April board meeting and concluded there was “not a strong case” for an adjustment in the near term.

RBA board members conceded interest rates were unlikely to need to rise in the near future and decided standing pat would allow it to be “a source of stability and confidence.” In doing so, it noted the impact of further easing would be “smaller than in the past” because of high household debt and declining property prices.

“Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure,” the RBA said.

Policymakers also discussed the strong job market outlook as a reason to keep a rate move on hold. However, the RBA acknowledged in the minutes that “forward-looking indicators of labor demand had been mixed” in recent months. In making this comment, the central bank was referring to the contradiction between weaker results for job advertisements and stronger outcomes for job vacancies reported by employers.

RBA board members also discussed low inflation, acknowledging they’ll struggle to return inflation to target.

“Continued low growth in household disposable income and the adjustment in housing markets had weighed on household spending,” the RBA said. Policymakers also noted that a slight rise in household income was going to be important to achieve its central case of lower unemployment and faster inflation.

The RBA also acknowledged the marked slowdown in Australian GDP contradicts the sustained labor market strength.

“The board will continue to monitor developments, including how the current tensions between the domestic GDP and labor market data evolve, and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time,” the bank said in its concluding paragraph.

As a side note, consumer inflation has been at or below the bottom of the RBA’s 2-3 percent target for the past few years.

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