Rate cuts may still be needed according to RBA minutes
(20 March 2013 – Australia) The minutes of the Reserve Bank of Australia's (RBA) 5 March meeting have shown low interest rates have provided a boost to under-performing parts of the economy, but notes further rate cuts may still be required.
The RBA said there were signs the six interest rate cuts delivered between November 2011 and December 2012 were starting to affect weaker parts of the economy.
'Interest rate sensitive parts of the economy continued to show signs of responding to these low rates and it was likely that this still had further to run,' the RBA said in the minutes, released on Tuesday.
'At this meeting, the board's assessment was that, while further reductions may be required, on the information currently to hand it was appropriate to hold rates steady, and to assess further developments over the period ahead.'
Gross Domestic Product (GDP) was likely to remain below its long-term trend in 2013, but would pick up after that with signs investment in non-mining sectors would continue to improve.
A further moderation in wages growth would help keep inflation around the middle of the RBA’s two to three percent target range.
Meanwhile, the RBA said Australia's commercial banks were continuing to record strong profitability and, due to improvements in the global economy, were benefiting from more favourable wholesale funding conditions.
But it said it would take a while for the improved conditions to push average funding costs lower, with banks still facing strong competition for deposit holders.
'In time, this improved environment should see some moderation in banks' strong demand for deposits but, for the present, spreads between deposits and comparable wholesale benchmarks remained elevated,' the RBA said.
'Interest rate sensitive parts of the economy continued to show signs of responding to these low rates and it was likely that this still had further to run,' the RBA said in the minutes, released on Tuesday.
'At this meeting, the board's assessment was that, while further reductions may be required, on the information currently to hand it was appropriate to hold rates steady, and to assess further developments over the period ahead.'
Gross Domestic Product (GDP) was likely to remain below its long-term trend in 2013, but would pick up after that with signs investment in non-mining sectors would continue to improve.
A further moderation in wages growth would help keep inflation around the middle of the RBA’s two to three percent target range.
Meanwhile, the RBA said Australia's commercial banks were continuing to record strong profitability and, due to improvements in the global economy, were benefiting from more favourable wholesale funding conditions.
But it said it would take a while for the improved conditions to push average funding costs lower, with banks still facing strong competition for deposit holders.
'In time, this improved environment should see some moderation in banks' strong demand for deposits but, for the present, spreads between deposits and comparable wholesale benchmarks remained elevated,' the RBA said.
Subscribe