By Lucy Hughes Jones
(Australian Associated Press)
The Reserve Bank has painted a rosier picture of the economy and seems in no rush to deliver an interest rate cut.
But it is keeping a close eye on how the non-mining sector evolves and left the door open for a rate cut if growth slows, according to minutes from its December 1 board meeting.
During the meeting, board members left the cash rate at a record low of two per cent for the seventh consecutive month.
JP Morgan economist Tom Kennedy said the minutes contained no material changes to the bank’s core narrative or policy guidance.
“We view (this) as officials not wanting to rock the boat ahead of their summer hiatus,” he said.
RBA board members believe the Australian economy will improve in the next two years, but noted that sluggish inflation would be no obstacle to rate cuts beyond 2015.
They also noted strength in the jobs market, saying business conditions were improving.
The falling Australian dollar was adjusting to plummeting commodity prices and boosting demand for domestic production, they added.
“There had been an improvement in conditions in the non-mining sectors over the past year, which had been accompanied by stronger growth in employment and a steady rate of unemployment,” the minutes said.
“Measures of job vacancies and advertisements pointed to continued growth in employment over the coming months.”
The meeting was held ahead of the release of solid economic growth figures for the September quarter and surprisingly healthy jobs figures, although commodity prices have come under further pressure.
RBC Capital Markets senior economist Su-Lin Ong said the firmer domestic data coupled with a likely US interest rate rise later this week could mean the RBA holds its cash rate for a while longer.
Commonwealth Bank economist Gareth Aird also noted board members appeared pleased with the recent lift in credit growth being driven by demand from businesses.
“This is exactly the shift in credit growth drivers that the RBA has been looking for – a lift in business credit growth is a precursor to capital investment,” he said.