RBA keeps cuts in mind
RBA governor Glenn Stevens said following the central bank's monthly board meeting on Tuesday it was "prudent to leave the cash rate unchanged", but added, as he had in recent statements, that there was scope to continue the easing cycle if it was necessary to support demand.
Economists said the RBA's stance was tactical, with a slight change of language in its statement to note the recent spate of positive economic data, while re-emphasising its concern about the continued strength of the Australian dollar. "But a dovish bias does not mean they will necessarily follow through with cuts," HSBC chief economist Paul Bloxham said.
Mr Stevens also said the bank remained on standby "to ease policy further, should that be necessary".
But it believes economic conditions have improved since its February meeting, marginally lessening the likelihood of a further rate cut.
Building approvals, consumer confidence and retail spending are improving and retailers have told the RBA that spending figures for February - not yet released - are likely to be encouraging.
The bank is taking a cautious approach to the latest employment figures showing a jump of 71,500 in February, believing it is too early to tell whether the job market has lifted. Among the triggers that could make the bank cut rates again are a rise in unemployment as the resources investment boom slows, and a further rise in the Australian dollar.
Mr Stevens added that lower rates appeared to have "an expansionary effect on the economy", a modest shift from last month's comments that lower rates were "having some of the expected effects", ANZ's head of Australian economics Justin Fabo noted.
Macquarie Bank senior economist Brian Redican said the continued easing bias suggested the RBA was "not getting carried away" with the spate of positive statistics over the past month. Recent economic data also showed improvements in consumer sentiment and the housing market.
"They are waiting to see the whites of the eyes before shooting again," Mr Redican said. "The Reserve Bank had the option of becoming more upbeat in terms of its statement, and it's chosen not to do that."
The markets had expected a possible shift towards a neutral bias by the Reserve Bank, Westpac chief currency strategist Robert Rennie said, which led to a small fall in the Australian dollar following the RBA's decision. A few minutes after the release, the dollar rose momentarily before easing to $US1.045, down from $US1.046 shortly before the bank's decision was announced.
The dollar had edged up against its US counterpart overnight, reaching one-week highs.
The RBA's easing bias did not change financial markets' expectations that the cutting cycle was drawing to a close, with Credit Suisse data showing it had priced in a 76 per cent chance of just one more 25 basis points cut this year.
Frequently Asked Questions about this Article…
The Reserve Bank held the cash rate at 3 per cent for a third straight month but said it remains on standby to ease policy if needed. For investors, that means borrowing costs are still relatively low and the RBA’s easing bias could support economic demand — but any future cut would affect interest rates, bond yields and sectors sensitive to rates such as property and bank stocks.
A dovish bias means the RBA is leaning toward easier policy (rate cuts) if conditions require it, but ‘tactically dovish’ — as economists described — reflects cautious language acknowledging recent positive data while keeping the option to cut. It signals support for growth without promising immediate cuts, which can calm markets but not guarantee lower rates.
The RBA cited improvements in building approvals, consumer confidence and retail spending (retailers indicated February spending should be encouraging) and noted a jump in employment of 71,500 in February. Investors should watch these indicators for signs of sustained economic momentum that could reduce the likelihood of further rate cuts.
The RBA flagged a rise in unemployment (for example if the resources investment boom slows) and a further rise in the Australian dollar as potential triggers for more easing. Those developments could weaken demand or harm export competitiveness and prompt policy easing.
Markets briefly pushed the Australian dollar down after the RBA decision; the dollar eased to about US$1.045 from US$1.046 shortly before the announcement. The article also noted the AUD had earlier reached one‑week highs, showing currency moves can be volatile around RBA communications.
Economists described the RBA’s wording as cautious and maintaining an easing bias. Credit Suisse data showed markets had priced a 76% chance of just one more 25 basis point cut this year. Banks and economists (HSBC, Macquarie, ANZ, Westpac) generally see scope for easing but are cautious about committing to more cuts.
The RBA observed that lower rates appear to have an expansionary effect on the economy — a slightly stronger phrasing than last month — suggesting rate cuts have helped support spending, housing and broader economic activity, though the bank remains watchful for durable signs of improvement.
Investors should monitor upcoming employment data, retail spending releases (including February figures), building approvals, the strength of the Australian dollar, and developments in the resources investment cycle. These indicators were highlighted by the RBA as key to whether further easing might be needed.
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