CANBERRA: Australia’s central bank held rates steady at its last policy meeting of the year today. But the Reserve Bank of Australia sounded a note of caution on economic growth after a run of soft data pointed to a possible contraction in the third quarter. The RBA ended today’s meeting with rates at a record low of 1.5% following two easings this year, but conceded the annual pace of growth was set to slow.
Governor Philip Lowe also dropped a reference to the economy growing at potential in his statement. “Some slowing in the year-ended growth rate is likely, before it picks up again. The outlook for business investment remains subdued, although measures of business sentiment remain above average,” he wrote. Policymakers have been sounding more optimistic on the economic outlook amid higher prices for key commodity exports. A report on Australia’s gross domestic product is due tomorrow and analysts now fear it could show a small contraction, the first since early 2011.
Interbank futures still suggest the market sees scant chance of another cut in rates for the next few months, though any thought of a hike has also been priced out. Low inflation and a lacklustre labour market could put the RBA on notice to cut rates further. Underlying inflation is stuck at a record low of 1.5% and seems likely to remain below the RBA’s 2-3% target band for another year or more. Employment growth has also disappointed in recent months, while being heavily skewed toward part-time jobs.
