RBA signals possible rate cut

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John Hilton

The Reserve Bank has justified its September decision to leave the cash rate at 2.5% by acknowledging the high degree of stimulus in place.

“Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them,” said the minutes of the September Board meeting

Since late 2011, the Board has lowered the cash rate by 225 basis points. The historically low lending rates coupled with the lower (but still relatively high) exchange rate were continuing to stimulate the economy.

“This was most evident in the housing market, with the lags in the effect of policy meaning that earlier actions were still likely to take some time to have their full effect on demand more generally,” the minutes said.

The Board is hoping that these conditions would help the economy deal with the shift from resources to more diverse forms of investment.

The RBA also noted that the high rate of excess home loan repayments was consistent with low rates of financial stress by consumers with mortgages.

They identified property gearing in self-managed superannuation funds as an area that households could be risking their savings.

“In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards.”

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