Confidence in economy grows: RBA
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THE Reserve Bank seems unlikely to cut the cash rate thanks to benefits from the lower Australian dollar flowing through to the economy.
In the minutes of its November board meeting, the central bank gave an upbeat assessment on the Australian economy but also said very weak inflation gave it scope for a rate cut if need be.During that meeting, the RBA board decided to keep the cash rate on hold at 2.0 per cent, partly because economic conditions had firmed, aided by weaker dollar.
Looking ahead, board members believed the services sector would continue to boost growth in output. They also noted that inflation remained below target, highlighting the lower-than-expected inflation print in the September quarter. Consumer prices rose half a per cent in the September quarter for an annual rate of 1.5 per cent, and has now been below the RBA's target band for a year.
The RBA has since trimmed inflation forecasts, while being more positive on jobs growth and the housing market. The central bank acknowledged household consumption is tipped to add significantly to growth in the next two years thanks to relatively strong employment and low interest rates. But board members warned the unemployment rate was still high and wages growth was sluggish.
"The gradual nature of the pick-up in domestic growth suggested that spare capacity would persist for some time," the RBA said.
The meeting was held two weeks ago, before a surprise drop in the jobless rate all but guaranteed interest rates to remain steady ahead of Christmas.Australia's unemployment rate fell to 5.9 per cent in October, while ABS figures suggest the total number of people with jobs surged by 58,600.
The RBA believes tighter regulations were helping to contain the housing market, and helping to remove obstacles to cutting interest rates. In addition, forward-looking indicators of housing activity generally pointed to further moderate growth in dwelling investment.
(Source: The Australian 17 November 2015)
