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.
Frequently Asked Questions about this Article…
The Reserve Bank left the cash rate unchanged at 3% for the third straight month, saying it was 'prudent' to hold rates while keeping the option to ease further if needed. Everyday investors should watch this because the bank's stance influences borrowing costs, mortgage rates and overall economic demand, which affect share prices and property markets.
The RBA signalled a continued easing bias by saying there is scope to cut rates if necessary and that it remains on standby to ease policy further. In plain terms, the bank is leaning toward lower rates if economic conditions weaken, but it is not committing to immediate cuts.
The RBA cited improving building approvals, rising consumer confidence and retail spending, and encouraging retailer reports for February. It was cautious about employment data—a reported jump of 71,500 jobs in February—and is waiting to see if the job market strength is sustained.
The RBA said possible triggers for further cuts include a rise in unemployment as the resources investment boom slows and a further rise in the Australian dollar. For investors, rate cuts typically lower borrowing costs and can support economic activity, which may boost cyclical stocks and property, but can also affect currency-sensitive investments.
The markets expected a possible shift toward neutrality, which briefly pushed the Australian dollar down; shortly after the announcement the dollar rose momentarily then eased to about US$1.045 (down from US$1.046). Financial markets still saw the cutting cycle as drawing to a close despite the easing bias.
HSBC’s Paul Bloxham warned that a dovish bias doesn’t guarantee cuts. ANZ’s Justin Fabo noted the bank now sees lower rates as having an expansionary effect. Macquarie’s Brian Redican said the easing bias shows the RBA isn’t getting carried away by positive data, and Westpac’s Robert Rennie said markets had expected a move toward neutrality, which influenced the currency.
The article suggests the RBA is cautious but ready to act if needed; it’s not a clear signal to overhaul portfolios. Investors may want to review interest-rate-sensitive holdings (like mortgage plans, property and cyclical stocks) and stay informed about employment and currency trends that could prompt future RBA action.
Although the RBA retained an easing bias, it also noted improved economic conditions since February, making another cut slightly less likely in the short term. Markets and commentators still view the cutting cycle as drawing to a close, but the bank remains ready to ease if downside risks materialise.
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