RBA leaves door open to more interest rate cuts
The Reserve Bank has left the door open to even more interest rate cuts, with the minutes of its latest meeting showing ongoing concern about the state of the jobs market and the lack of wages growth experienced by Australian workers.
The RBA cut the official cash rate to 1 per cent - a new all-time low - at the July meeting, following a quarter percentage point reduction in June.
New minutes show the bank's concern about softeness in the jobs market continued in the board's July discussion with a heavy focus on the state of employment across the country.
Financial markets have priced in a further interest rate cut by February next year although many market economists believe the RBA will move in November following the September quarter inflation report.
The minutes show the jobs market will determine the direction of interest rates.
"The [RBA] board would continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time," the minutes read.
Job figures due out on Thursday are tipped to show the jobless rate steady at 5.2 per cent with a pick-up of about 20,000 in total employment.
But the minutes show the bank is concerned that forward looking indicators such as job advertisements and business employment intentions suggest jobs growth could "moderate" over coming months. They also noted that the under-employment level "remained elevated".
That pointed to little upward pressure on overall wages.
"Although there had been a modest pick-up in wages growth in the private sector, wages growth had remained low overall. In combination, these factors suggested that spare capacity was likely to remain in the labour market for some time," the minutes showed.
The RBA said there would be some boost to household incomes due to the federal government's tax cuts that have now started flowing into bank accounts.
But the drought was putting pressure on farm incomes while the housing market was still facing a tough period despite the stabilisation in prices in Sydney and Melbourne.
"Dwelling investment had declined in the March quarter. Further falls were expected given the sharp decline in building approvals over the preceding year and a half," the minutes stated.
"While the pipeline of construction work yet to be done in New South Wales and Victoria remained high, liaison contacts expected housing construction could drop off more sharply because pre-sales activity had been so weak."
The board noted markets expected further monetary policy easing by the end of the year.
16 July 2019