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RBA still in wait-and-see mode

NO change in the cash rate, no sign that a cut is likely soon, but no sign that a cut later on has been ruled out. 

That was the message as the Reserve Bank of Australia decided, as widely anticipated, to keep its benchmark interest rate at its half-century low of 2.5 per cent.

The statements issued after the RBA board’s monthly monetary policy meetings are terse and rarely unambiguous.

“At today’s meeting, the board judged that the setting of monetary policy remained appropriate.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target,” the statement concluded.

It was exactly the same vague comment that ended the previous statement in September. But the lack of an explicit pointer to future cuts did not mean they are off the agenda.

The minutes of the meeting, which cover the same ground as the statement but in more detail, are due for release with the usual fortnight’s delay on October 15.

If the pattern of the past two months is followed, the minutes will say that the board did not want to close off the possibility of another cut but, at the same time, did not want to signal a cut was imminent.

For the time being, RBA-watchers will assume that this “on the fence with an easing bias” position will be maintained.

The RBA – as usual – noted that there were signs that the easier monetary policy had been having an impact on demand for finance, but that the effect had been “relatively subdued to date”.

And inflation remains not just in line with the two to three per cent medium term target but is expected to stay that way for the next couple of years. If the response remains subdued the RBA could want to cut again, and if inflation stays dormant then it would have few qualms about cutting.

So the case for more rate cuts could easily be reactivated. The Australian dollar could be the catalyst.

“A lower level of the currency than seen at present would assist in rebalancing growth in the economy,” the RBA said.

Its a fairly transparent acknowledgement that the persistently strong Australian dollar has diluted the normal impact of lower interest rates, and an implied plea for the market to bring it down. If the market doesn’t listen and the Aussie stays high, the cash rate could well be cut again.

But we’ll have a better idea of the possible timing of that when we get a look at the minutes.

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