RBA leaves official cash rate at 2 per cent

The Reserve Bank has left interest rates unchanged, with a cut not expected before mid-year. Analysis with Peter Martin.

The Reserve Bank of Australia has hinted it is slightly more inclined to cut the cash rate again ? despite holding it at 2 per cent for the ninth board meeting in a row.

In a statement which was almost a carbon copy of his February commentary, governor Glenn Stevens said benign inflation, moderating house price growth and Australia's successful transition away from mining investment made the case for interest rates to remain low.

However, weak consumer price growth would also facilitate another cut if that were necessary, he said.

"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand," governor Stevens said.

The board's decision was universally expected, and the Australian dollar, which had been under pressure from weak fourth-quarter economic data earlier in the day, remained steady around US71.20¢ before later inching up.

In late local trade it was fetching US71.35¢, little changed from the same time on Monday.

Jobs market focus The jobs market will remain the central bank's focus over the coming months, after a surprise jump in the unemployment rate, from 5.8 to 6 per cent, in January.

"Certainly the commentary around the labour market was more subdued," said Westpac chief economist Bill Evans.

"In this statement, it noted that labour market conditions improved in 2015, whereas in February the board noted that 'employment growth picked up and the unemployment rate declined'."

Global market upheaval, driven in part by growth fears, would also weigh on future decisions, the RBA said.

"Over the period ahead, new information should allow the board to judge whether the improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand," Mr Stevens said in the statement.

Economists remain divided on whether or not the central bank will be forced to cut the cash rate again this year, with some pointing to a subtle change in language in Tuesday's statement ?swapping "may" for "could" ? to support predictions of further reductions.

Capital Economics' chief economist for Australia Paul Dales described Mr Stevens' language as "a bit more dovish", which means more inclined to use low inflation to justify another rate cut.

"This is a very subtle change to the RBA's implicit easing bias," he said, "but it suggests that the RBA has become more convinced that underlying inflation will remain close to the bottom of the 2 per cent to 3 per cent target range for longer.

"We expect that the RBA will cut interest rates to 1.5 per cent this year, perhaps starting with a reduction in May," said Mr Dales.

Economists, meanwhile, were also busy on Tuesday revising down their estimates for gross domestic product (GDP) growth in the December quarter after another set of weaker than expected figures.

SMH / March 1, 2016

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