Interest rates are expected to stay on-hold for the rest of the year after the central bank confirmed inflation was easing.
The minutes of the Reserve Bank of Australia’s (RBA) October 4 board meeting, released on Tuesday, showed the bank was taking a wait and see approach on cutting the cash rate from its current level of 4.75 per cent.
The meeting was two weeks ago and at the time, there was turmoil in financial markets amid worries the Eurozone government debt crisis would spread from Greece to other nations like Italy and Spain, both of which are considered too big to bail out.
“While there remained good reasons to expect solid growth over the medium term, indications were that the pace of near-term growth was unlikely to be as strong as earlier expected, reflecting both global and local factors,” the RBA minutes said.
HSBC chief economist Paul Bloxham said the minutes were very similar to the statement released by the central bank after the decision to hold the cash rate earlier in the month.
“They’re obviously becoming less concerned about the outlook for inflation and have said that they think the outlook could be more consistent with their target,” Mr Bloxham said.
“The key thing they’ve also pointed out is that they’re waiting for the next CPI (consumer price index) read which I think will be a really critical piece of information in terms of setting out where policy might be headed from here.”
The Australian Bureau of Statistics releases its September quarter CPI data, a key measure of inflation, on Wednesday next week.
Mr Bloxham expects the figures to show that inflation is still elevated, suggesting that the RBA will keep the cash rate on-hold, rather than cut it as some are suggesting, for the rest of the year.
“We still think the next move is likely to be up rather than down.
“But clearly, this is highly conditional on what happens globally.”
RBC Senior economist Su-Lin Ong said there were no great surprises in the RBA minutes.
“They are confirming that the door still remains open for cuts but that is obviously heavily qualified based on an improved inflation outlook,” she said.
“That to a degree tells you they are still waiting for this third quarter CPI next week.
“If needed, a better inflation outlook could give them scope to cut.
“That’s fairly qualified still and we’re fairly mindful that the minutes are two weeks out of date.
“Some of the recent data has been fairly strong.”