SYDNEY Australia's central bank said recent economic developments had strengthened its view that interest rates can remain low for some time to come, citing a pick-up in consumption and housing that was offset by a still subdued labor market and slow wage growth.
In the minutes of its March 4 policy meeting, the Reserve Bank of Australia (RBA) also said while the fall in the local dollar to date would help the economy achieve balanced growth, the currency remained high by historical standards.
"At recent meetings, the Board had judged that it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected," the minutes showed.
"Developments since the previous meeting had supported that assessment... In light of this assessment, the Board's judgment was that it would be appropriate to maintain the current stance of policy."
The RBA kept its cash rate at a record low 2.5 percent, where it has been since August. In all, the central bank has slashed 225 basis points off its benchmark rate since late 2011.
Debt futures, having all but priced out the risk of further cuts this year, now imply a one-in-five chance of an interest rate rise by the end of the year.
Westpac Bank (WBC.AX), which has long called for the cash rate to fall as far as 2.0 percent, this week came to the view the RBA would probably not cut interest rates any more. Among the big four local banks, the National Australia Bank (NAB.AX) is the only one still forecasting a further easing in 2014.
The minutes showed the RBA board believed that soft employment and wage growth was consistent with the fact that the labor market usually lagged changes in economic activity. It also noted that forward-looking indicators of labor demand appeared to have stabilized.
Board members also discussed the risk that rising house prices and borrowing could lead to speculative froth in the housing market, but agreed that present conditions did not pose a near-term risk to the financial system.
"Members discussed the experience in other countries where macroprudential tools had been utilized to slow demand for established housing and their possible application in Australia," the minutes added.
The central bank said board members were briefed on the bank's half-yearly assessment of the financial system, in which it gave the health of Australia's banking system a tick of approval.
On China, the RBA said it was difficult to interpret the recent set of disappointing data because of the Chinese New Year holiday but it acknowledged that growth appeared to have moderated a little in early 2014.
"The Board was briefed about longer-run trends, which suggested that, while the working age population was close to peaking, urbanization was expected to continue in China for some time" the minutes said.
"Combined with likely increases in the size and quality of housing, this could underpin high levels of new urban residential construction over coming years."
The RBA next meets on April 1. nRUAHEEA4J