RBA minutes highlight potential for further rate cuts

Thursday 18 October 2012

Article by Mozo

The Reserve Bank of Australia (RBA) has released the minutes from its latest meeting at the start of October and they suggest that further interest rate cuts could be in the pipeline.

Members of the board decided to trim the national cash rate by 25 points – taking it to a three-year low of 3.25 per cent.

Although none of the major banks passed this on to their customers in its entirety, it was still a great relief for mortgage holders and people with business loans.

The newly-published minutes highlighted the RBA's concern with the recent downturn in the mining sector, which the organisation believes has dampened overall economic growth prospects for the year.

"Members concluded that the current assessment of the inflation outlook provided scope to adjust policy in response to the softer growth outlook," the RBA minutes stated.

The minutes did not explicitly say that another rate cut would be imminent, but the report certainly didn't rule it out either.

Companies have found the going very tough this year and firms have bemoaned the high value of the dollar.

The demand for credit has been somewhat subdued up to this point, but further rate reductions may encourage more organisations to borrow money with a view to expanding their enterprise.

Some economists believe the official cash rate could fall as low as 2.5 per cent by March 2013. When you consider that it stood at 4.75 per cent before November 2011, the scale of the reductions has been incredible.

Speaking to the Herald Sun, AMP Capital Investors chief economist Shane Oliver said momentum is "rapidly fading" in the mining industry and the overall economy remains subdued.

"The RBA is obviously more worried about Australian growth than it was a few months ago and there is certainly a dovish tone to the minutes, which is consistent with a November cut of 25 points followed by two more in early 2013," he was quoted as saying.

RBA minutes highlight potential for further rate cuts

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