Australia's central bank reviewed the case for a further reduction in the cash rate at its February policy meeting but considered the risks outweighed the benefits, minutes released on Tuesday showed.
The Reserve Bank of Australia (RBA) held its benchmark cash rate at an all-time trough of 0.75% at its first meeting of the year and signalled the threshold was high to go even lower.
The case for further easing “rested largely on the only gradual progress towards the bank’s inflation and employment goals,” it said.
While lowering rates could speed progress, the incremental benefits of further reductions needed to be weighed against the risks associated with ultra-easy monetary policy, RBA board members discussed at the meeting.
“The board concluded that the cash rate should be held steady at this meeting,” the minutes showed.
Members agreed that an extended period of low interest rates would be required in Australia to reach full employment and achieve its inflation target.
“The board would continue to monitor developments carefully, including in the labour market, and remained prepared to ease monetary policy further if needed…”
Helping the RBA's case, the unemployment rate dipped to 5.1% in successive months in December while latest data showed fourth-quarter inflation ticked higher too.
Board members reasoned further cuts to interest rates could encourage more borrowing by households eager to buy residential property at a time when housing debt was already sky high.
Australia's housing market is in an upswing, having recovered over two-thirds of its 2017/19 correction in just six months.
Westpac estimates that, at the current pace of monthly gains, they should regain their peaks by mid-2020.
The RBA noted the housing upswing has been positive for household balance sheets, though it was too soon to see the response to this in consumer spending.
It was also unclear for how long the period of household balance sheet adjustment would continue, it added.
Apart from private consumption, the effects of an extended and severe bushfire season along Australia’s south east coast and a coronavirus outbreak too hung heavy on the outlook.
The RBA Board cautioned the impact of the virus was a "material" risk to China's economy, and thus to Australia's given extensive trade ties between the two countries.
Overall, the RBA remained upbeat about Australia’s A$2 trillion economy, saying accommodative monetary policy, a pick-up in mining and infrastructure investment and a rebound in home building would add to growth in the next couple of years.
(Reporting by Swati Pandey; Editing by Wayne Cole)
