RBA playing wait and see on cash rate
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SYDNEY, Feb 19 AAP
February 19 2013, 2:17PM
The minutes of the Reserve Bank of Australia's recent board meeting are positive about the economy but it appears in no rush to cut the cash rate again.
The minutes of the February 5 board meeting, published on Tuesday, indicate the RBA is waiting to see how the last series of interest rate cuts - in October and December - will flow through the economy before deciding if further cuts are needed.
"Interest rate sensitive parts of the economy had shown some signs of responding to these lower interest rates, which were well below their longer-run averages, and further effects could be expected over time," the RBA said in the minutes.
The RBA kept the cash rate at three per cent at its first meeting of the year in February and last cut rates by a quarter of a percentage point at its previous board meeting in December.
RBC Capital Markets senior economist Su-Ling Ong said the content of the minutes was predictable, confirming there was scope to cut if needed.
"The tug of war between mixed domestic data and improving global conditions is clear and is keeping the RBA on the sidelines," Ms Ong said.
"The tone of the minutes suggests that the hurdle to cut further is reasonably high, especially if the global backdrop and market confidence continue to improve.
"The onus lies upon the rate-sensitive sectors to disappoint."
Ms Ong said she expected the RBA to cut the cash rate in the second quarter of 2013, taking the rate to 2.75 per cent.
Commsec economist Savanth Sebastian said the minutes suggested the RBA expected the domestic economy to improve over the next few months.
"It essentially confirmed their view that they are happy to wait on the sidelines and are relatively upbeat about the domestic economy," he said.
"They highlighted that interest rate sensitive parts of the economy are starting to gain a bit of traction, given the low interest rate environment so that certainly seems to suggest that, over the next couple of months, they are expecting an improvement to take place."
Mr Sebastian said that while one further quarter of a percentage point rate cut was a possibility, he expected the RBA to keep the cash rate on hold throughout 2013.
He said although the RBA appeared to be confident that economic conditions were improving in China and the US, it remained concerned about the risk of a further weakening in the euro zone.
By Jason Cadden and Evan Schwarten