- Reserve Bank of Australia
The Reserve Bank of Australia kept door open for further interest rate cuts if needed despite worries over booming house prices in Sydney and Melbourne, the minutes of the last board meeting showed. The RBA cut the official cash rate to a historic low of two 2% on May 5 and the central bank stands ready for further moves amid tepid business investment and weakening China's economic growth. The RBA said policy makers acknowledged the potential threat that low rates could boost excessive borrowing from already highly indebted households and spur even stronger growth in housing prices, particularly in Sydney. Yet, the central bank believed a cut in rates would provide additional back up to economic activity by reinforcing encouraging trends in domestic demand. In turn, this would buoy non-mining business investment and ultimately result in stronger labour market condition.
In the minutes, the central bank also pointed to a gloomier economic growth outlook than was forecast in February as a contributor to the rate cut. The central bank also added weakness in the property market of leading trading partner China was a "significant risk" to demand for commodities that have spurred Australia's expansion. This is pushing down the nation's terms of trade, i.e. export prices relative to imports. Thus, the RBA reiterated that the Australian Dollar should be weaker as a result.
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