RBA Minutes: “still evidence of spare capacity in the economy”

Australia’s central bank said low interest rates are supporting household spending and a weaker exchange rate is aiding local firms, even as it reiterated that a subdued inflation outlook gives scope to ease policy further if needed. “Recent domestic data had generally been positive,” the Reserve Bank of Australia said Tuesday in minutes of its Dec. 1 meeting, where it kept rates at a record-low 2 percent for a seventh month. “Even so, members recognized that there was still evidence of spare capacity in the economy.”

Australia recorded its biggest back-to-back monthly jobs gain since 1988 after adding 71,400 workers in November, and consumer confidence has held up as optimists continue to outweigh pessimists. Expectations the central bank will further lower its benchmark in coming months to boost below-average growth have moderated, with traders pricing in a 44 percent chance of a rate cut by June. The local currency edged higher, trading at 72.58 U.S. cents at 11:35 a.m. in Sydney from 72.42 cents before the release.

Australia is grappling with the fallout from plunging prices of its commodity exports including iron ore as key trading partner China’s economy cools. “There was overcapacity in some parts of the Chinese economy,” the RBA said. “Conditions were likely to become more difficult over time for a range of unprofitable firms.” The central bank, which cut rates twice this year, could be gaining traction in its efforts to boost confidence to spur spending and encourage business investment.

Bloomberg

The RBA minutes are available here.

Stuart McPhee
Stuart McPhee
Australian private trader for nearly 20 years, author, trading coach, licensed adviser and regular speaker at major trading events all around the world. Graduate of RMC Duntroon and former Australian Army Officer.