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Reserve bank of Australia indicate interest rates will be kept on hold in near term

The Reserve Bank of Australia (RBA) at its April board meeting have said a cut in interest rates would be “appropriate” should inflation stay low, with no strong case for a move.

RBA Source: Bloomberg

Policy makers believe a cut would be in the works should inflation stay low and unemployment trend higher, saying the effect on an even lower cash rate on the economy could be smaller than in the past.

"Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure," minutes of the meeting showed on Tuesday.

The board concluded "there was not a strong case for a near-term adjustment in monetary policy."

Australian dollar price

AUD/USD eased after the RBA minutes showed a more dovish tone.

AUD/USD edging below $0.7160 upon the release.

IG market analyst Kyle Rodda said, the Aussie dollar has fallen somewhat following the minutes, however, remains much higher than what it was a fortnight ago when the RBA met.

Financial markets are pricing in a 25-basis-point cut by the end of this year and another cut in 2020.

Low chance of cash rate increase

RBA board members said, ‘Members agreed that the likelihood of a scenario where the cash rate would need to be increased in the near-term was low.’ However, RBA members said there was a small chance of a hike given subdued inflation.

IG market analyst, Kyle Rodda said the RBA’s minutes probably proved market participants’ general suspicions correct: that the central bank has edged slightly closer to an easing bias.

‘The RBA haven’t gone all-in yet on the dovish rhetoric, like some other major central banks. The minutes showed that the board discussed “scenarios” where rates might need to be cut; however, concluded the current circumstances wouldn’t warrant such an action.’ Mr. Rodda said.

RBA members expect inflation to remain at just under 2% for some time, while annual wage growth in Australia is only slightly higher at 2.3%

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