RBA to look at Greece, China on rates

Flags of China and Greece blowing in the wind.

By Sam McKeith
Sydney
(Australian Associated Press)

The Reserve Bank will keep a close watch on China’s stock markets, the Greek debt crisis and soft local business investment to see if further rate cuts are needed.

The RBA cut the cash rate to a historic low of two per cent in May and has left it there at its June and July meetings.

In the minutes of the July meeting, released on Tuesday, the central bank said international and local economic news would play a part in future rate decisions.

“Information to be received over the period ahead on economic and financial conditions would continue to inform the board’s assessment of the outlook,” the RBA said.

The Reserve Bank said economic growth in Australia’s major trading partners was around average, but key considerations would remain, including “recent volatility” on China’s stock markets and Greece’s ongoing debt saga.

The local economic picture remained largely unchanged from previous months, the RBA said, with low interest rates supporting housing investment and consumption growth, while mining and non-mining investment remained weak.

The bank noted signs of continued improvement in the jobs market, pointing to slowing population growth as a contributor offsetting sluggish economic growth.

Westpac chief economist Bill Evans said it was hard to assess the implications of the RBA’s comments on the labour market for future rate moves.

“On the one hand that may signal that any decision from the Bank to lower its growth forecast … may not necessarily signal a need to cut rates if trend growth is in fact now lower due to weaker population growth,” Mr Evans said.

“On the other hand the Board makes it clear that it is still uncomfortable with the level of the unemployment rate.”

CommSec economist Savanth Sebastian said the upbeat mood on jobs suggested the RBA looked “set for an extended period on the interest rate sidelines”.

“CommSec expects no change to interest rate settings in coming months,” he said.

In the minutes, the RBA also said the national housing market was little changed, with Sydney experiencing “notable strength”, and the effect of greater regulator scrutiny of investor remains unclear, it said.

The Australian dollar’s drop against the US dollar to levels not seen since 2009 was not boosting the economy by as much as the bank expected.

“Further depreciation seemed both likely and necessary,” the RBA said.

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