Australia's central bank will maintain its "highly accommodative settings" as long as required and will continue to consider how further policy measures could support the country's flagging economy, minutes of its September meeting showed on Tuesday.
The highly anticipated minutes did not indicate any policy action was imminent, wrong-footing Aussie dollar bears who were betting on another cut to the Reserve Bank of Australia's (RBA) cash rate from a record low of 0.25%.
Markets were closely watching the minutes for any discussion around further stimulus but the RBA "added little to our understanding of how monetary policy might evolve," ANZ economist David Plank wrote in a note.
As a result, the Australian dollar reversed its losses and jumped 0.4% to above 73 U.S. cents. <AUD=D3>
Interest rate futures <0#YIB:> are implying the cash rate at 0.11% but analysts say that is no longer an indication of further policy easing. The interest rate on balances held by financial institutions at the RBA as well as overnight interest rate swaps <AUDOIS=> are already trading around 0.1%, thanks to the extraordinary measures introduced by the central bank since mid-March.
"In no way are the futures pointing towards an expectation of an RBA rate cut," said a rates strategist at an Australian bank requesting anonymity. "They are simply tracking the cash rate which is already below the RBA target."
Board members noted there was plenty of scope for further fiscal stimulus with debt levels for the Australian federal and state governments still low relative to the size of the economy, the minutes showed.
The Australian government has so far pledged over A$300 billion ($219.39 billion) worth of fiscal measures to support the economy reeling from its worst contraction since the 1930s.
"In our view the timing and extent of further monetary policy measures will depend critically on fiscal policy," ANZ's Plank said.
"We think the upcoming federal and state budgets will contain enough stimulus to reasonably expect a relatively strong recovery in 2021," he added. The federal budget is due on Oct. 6.
"If this is the case, then we think the RBA will hold off from taking further steps until some time into 2021."
($1 = 1.3674 Australian dollars)
(Reporting by Swati Pandey; Editing by Christian Schmollinger, Sam Holmes and Ana Nicolaci da Costa)
