Australian Dollar falls broadly today on dovish RBA minutes as well as miss in house price data. RBA cut cash rate by -25bps to 1.25% at the June 4 meeting. The minutes noted that “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead.”
Policymakers acknowledged that inflation has been below 2-3% target range for three years and even deteriorated to 1.5% in Q1. Unemployment rate had not declined any further in the last six months despite ongoing job growth. It has eve edged up in the most recent two months. Thus, “a lower level of interest rates would support growth in the economy, thereby reducing unemployment and contributing to inflation rising to a level consistent with the target.”
Also, lower interests could support the economy through lower exchange rate, reduced borrowing rates for businesses, and lower interest payments for households. And give the extent of spare capacity in the economy and the subdued inflationary pressures, there was “a low likelihood of a decline in interest rates resulting in an unexpectedly strong pick-up in inflation.”
Instead, lowest interest rates would ” stimulate activity and thereby improve the resilience of the Australian economy to any future adverse shocks.”
