SYDNEY (Reuters) – Australia’s central bank considered the spare capacity in the country’s labor market and the recent upswing in housing when it decided to leave the cash rate at a record low of 1% this month.
Minutes of the Reserve Bank of Australia’s (RBA) Sept.3 meeting showed it would consider further cuts to interest rates if it was needed to support growth and achieve its 2% to 3% inflation target.
The RBA left interest rates at all-time lows earlier this month after easing by a quarter point in both June and July.
Financial markets are fully priced for another rate cut to 0.75% by year-end, and to 0.5% by February.
“Members would assess developments in both the international and domestic economies, including labor market conditions, and would ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time,” the minutes showed.
The RBA also provided forward guidance, with the minutes noting that “it was reasonable” to expect an extended period of low interest rates in Australia to meet employment and inflation goals.
The minutes showed members discussed Australia’s labor market where employment had continued to grow strongly though the jobless rate remained elevated at 5.2%.
At the same time, wages growth was still subdued and there were little indications wage pressures were building.
On the other hand, Australia’s housing market was showing signs of a turnaround with both mortgage approvals and auction clearance rates climbing.
House prices could further rally as data on residential building approvals and information from the RBA’s liaison program suggested there was likely to be further weakness in dwelling investment in the near-term.
“Members recognised that this could sow the seeds of an upswing in the housing price cycle at some point, particularly given the lengthy stages in the construction of higher-density residential housing,” the minutes showed.
Away from home, the RBA noted the downside risks to global growth from the prolonged and bitter Sino-U.S. trade war though Australia has so far remained insulated because the country’s exports were mainly exposed to Chinese domestic demand.The minutes showed board members had a detailed discussion of the way in which financial conditions abroad affect Australia, including how shifts in world interest rates and global risk premiums flow through to domestic financial conditions.
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