Cash rate cut still on the cards, confirms RBA

by Julia Corderoy16 Dec 2015
The Reserve Bank of Australia (RBA) has again left the door open to a future cash rate cut following a weak outlook for global inflation.

In the minutes of its December monetary policy board meeting, the RBA expressed concern over the “weaker than expected” Asian economy.

“Members commenced their discussion of the global economy with the observation that growth in Australia's major trading partners had picked up in the September quarter, driven by an increase in growth in some Asian economies following weakness in the previous quarter.  Overall, however, conditions across the Asian region, including in China and Japan, had been weaker than expected this year.”

In China, consumer price inflation (CPI) remained low while producer price inflation (PPI) fell at an even faster rate due to weak employment growth in the industrial sector and lower commodity prices. 

The Reserve Bank also noted sluggish growth in the US and European economies.

“Growth in the United States and the recovery in the euro area had continued. Core inflation had generally edged higher in both the advanced and emerging economies, but remained below most central banks' targets,” the minutes stated.

Domestically, inflation figures didn’t provide much comfort to the Reserve Bank either. According to the minutes, the growth in Australian wages remains under par. 

“Wage inflation had remained subdued in the September quarter, consistent with spare capacity in the labour market and the forecast for a prolonged period of weak wage growth.”

As such, the Reserve Bank said the door will remain open for future cash rate cuts, which will see the official interest rate move to new historical lows below 2%.

“Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand. 

“The Board would continue to assess the outlook, and hence whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target.”