Jobs key to RBA’s next rate move

THE Reserve Bank says cutting interest rates might be “appropriate” if the unemployment rate rises and inflation remains weak.

The board of the RBA discussed scenarios under which it was likely a cut to the official cash rate below its already historic low was needed, minutes from the central bank’s most recent board meeting show.

At its April 2 gathering, the RBA left the cash rate at 1.5 per cent for a record 29th consecutive meeting.

But the board said a lift in the number of people without jobs and stagnant inflation could prompt it to cut the cash rate, minutes from that meeting released yesterday show.

“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 say.

“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.

“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.”

While the RBA board said economic growth had slowed down markedly in the second half of last year, it noted that

the unemployment rate remained low and it expected inflation to rise to the midpoint of its 2 per cent to 3 per cent target.

“Members agreed there was no strong case for a near-term adjustment in monetary policy,” the minutes say.

The board also said the likelihood of a higher cash rate in the near term was low.

This marks a turn in policy compared with last month when it saw the risks for rates to move in either direction as more “evenly balanced”.

Fresh jobs data is expected tomorrow, while first-quarter inflation data will arrive later in April.

UBS economist George Tharenou said the inflation rate was likely to drop, “shifting the RBA to an easing bias in May and open the door to rate cuts”.

ANZ Australia Economics head David Plank noted the “subtle dovish tilt” in the RBA’s position on the future direction of interest rates but said it “isn’t in any hurry to make a decision”.

CommSec chief economist Craig James said it seemed the Reserve Bank expects further progress in reducing unemployment, lifting wages and prices, and therefore lifting consumer spending.

“The Reserve Bank is open to cutting rates, but there is no rush,” Mr James said.

The Aussie dollar dropped on the release of the minutes, falling from US71.70c to US71.41c in the space of 45 minutes.

The RBA update came as new numbers from Australia’s biggest mortgage aggregator show fewer mortgages were issued in the first three months of the year than at any time in the past six years.

Australian Finance Group said it had lodged 23,049 loans in the quarter, 10 per cent fewer than the previous three months and 15 per cent lower than the same period last year.

The $11.6 billion lent was the lowest quarterly figure since 2014, it said.

“Today’s numbers provide stark evidence that the lending environment has significantly deteriorated,” AFG chief executive officer David Bailey said.