SYDNEY, (Reuters) - Australia’s central bank has left the door wide open for another cut in interest rates but felt a pause this month was prudent partly due to uncertainty about the behavior of households in a world of very low interest rates.
In minutes of the March 3 meeting, when the Reserve Bank of Australia (RBA) surprised some by not delivering a back-to-back easing, the central bank said members saw benefit in allowing some time for the structure of rates and the economy to adjust to the earlier change.
“They also saw advantages in receiving more data to indicate whether or not the economy was on the previously forecast path,” the minutes said.
“Taking account of all these factors, members judged it appropriate to hold the cash rate steady for the time being, while recognizing that further easing over the period ahead may be appropriate to foster sustainable growth in demand while maintaining inflation consistent with the target.”
The RBA left the cash rate at a record low 2.25 percent, following a cut in February. Debt markets imply a one-in-three chance of a quarter-point cut next month and are fully priced for a move by June.
The central bank hinted it would be happy to see the local dollar fall further, saying it remained above most estimates of fundamental value, particularly given the steep declines in key commodity prices.
The minutes highlighted the risk of business investment staying subdued for longer and pointed to an economy that is likely to operate with a degree of spare capacity for some time.
Members noted that monetary policy was already accommodative and also acknowledged that a lower local dollar would help achieve balanced growth in the economy.
“Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge,” the minutes said.
The board discussed risks in the housing and commercial property market, noting house prices in Sydney had risen more sharply than in the rest of the country.
However, the Board noted that household leverage had not increase significantly, even as credit had grown a little faster than incomes. Measures of household stress were also low and the banking system was profitable and well capitalized, the minutes showed.
The RBA noted it was working with other regulators to assess and contain risks that might arise from the housing market.