Australia's Central Bank Sees No Pressing Need for Rate Cut

Australia's central bank saw no "pressing need" to cut interest rates at its  recent monthly policy meeting given signs of stabilization at home and abroad, though it judged there was  scope to ease further if necessary.

Minutes of its June policy meeting showed the Reserve Bank of Australia (RBA) looked for a gradual  economic expansion to get underway later in the year, supported by the lagged effect of past monetary and  fiscal easing.

"Board members did not see a pressing case for any further action at this meeting, though they viewed the  inflation outlook as affording scope for some further easing of monetary policy, if that were to be needed to  support demand at a later stage," the minutes showed.

The board thus chose to keep the official cash rate unchanged at 3.0 percent for a second month. The rate  had previously been slashed by 425 basis points over eight months. Financial markets are currently pricing in only a slight chance of any further easing, and for the first hike in rates to come within 12 months.

The minutes noted that this easing, coupled with aggressive fiscal action by the Labor government, "represented the largest macroeconomic policy stimulus over recent decades."

The full effect of this stimulus was yet to be felt, so the board judged that maintaining current rates  would be consistent with fostering economic growth and low inflation while leaving plenty of flexibility to  respond to events.

The board saw signs of stabilization in the global economy, though they felt the most likely outcome would  be for only subdued growth for the next year or two.

Board members took particular note of a strong recovery in Chinese industrial production and an  improvement in other east Asian economies, including Japan.

China has become increasingly important as a major buyer of Australian resource exports and its economic  health is considered vital to the domestic outlook.

"While some uncertainty about the durability of China's economic recovery inevitably remained, there were  reasonable grounds to expect that the Chinese economy would continue to record solid growth outcomes," the RBA  concluded.

At home, the latest economic data suggested the downturn in Australia would prove less severe than in most  other developed countries, while expanding spare capacity should lead to declining inflation.

"Recent information had not led to any downward revision to the outlook; if anything, some indicators had  been on the stronger side," the minutes showed.