RBA discussed cutting rates but saw no near-term case for a move

The Reserve Bank of Australia (RBA) discussed interest-rate cuts in a review of policy scenarios at its April board meeting and concluded there was "not a strong case" for an adjustment in the near term.

The RBA conceded rates were unlikely to need to rise in the period ahead and decided standing pat would allow it to be "a source of stability and confidence". It noted the impact of further easing would be "smaller than in the past" because of high household debt and declining property prices.

Governor Philip Lowe is in a bind.Credit:AAP

"Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure," the RBA said in minutes of its April 2 meeting released in on Tuesday.

Governor Philip Lowe is in a bind: the economy is decelerating sharply as consumers slash spending in response to tumbling housing prices; yet hiring and investment remain healthy and unemployment has fallen to an eight-year low. The RBA said in the minutes that other developed nations were struggling with similar mixed signals from economic activity.

While policy makers have held up the job market's strong outlook as a reason to hold, the RBA acknowledged in the minutes that "forward-looking indicators of labor demand had been
mixed" in recent months. It was referring to the contradiction between weaker results for job advertisements and stronger outcomes for job vacancies reported by employers.

The RBA has kept rates unchanged at a record-low 1.5 per cent since 2016 and was prepared to tolerate weaker inflation to avoid further inflaming a then-roaring housing market. Sydney
prices have tumbled 14 per cent from their 2017 peak; yet they're still up more than 40 per cent on their level in 2012, when the boom began.

Yet policy makers seem to have acknowledged they'll struggle to return inflation to target: on top of weak wages and intensified retail competition, governments are using administrative measures to contain prices to defuse an angry electorate.

"Continued low growth in household disposable income and the adjustment in housing markets had weighed on household spending," the RBA said. Board members noted that a pick-up in household income was going to be important to achieve its central case of lower unemployment and faster inflation.

The RBA is due to release its quarterly update of economic forecasts next month and economists predict it will lower the growth outlook after the economy decelerated from an annualised
almost 4 per cent expansion in the first half of last year to 1 per cent in the second six months.

"The board will continue to monitor developments, including how the current tensions between the domestic GDP and labour market data evolve, and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time," the bank said in its concluding paragraph.

CPI has been at or below the bottom of the RBA's 2-3 per cent target for the past few years.

Bloomberg

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