RBA to ‘reassess’ environment in February

The Reserve Bank of Australia (RBA) has released minutes from its monetary policy board meeting in December, in which it has reiterated that it remains prepared to lower the cash rate further to achieve its targets for economic growth.

“As part of their deliberations, members noted that the board had the ability to provide further stimulus to the economy, if required,” the RBA noted.

“Members also agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target.”

The board, however, has revised its minutes to include that it would be “important to reassess the economic outlook in February 2020”.

Analysts are expecting the RBA to cut the cash rate for a fourth time in February, to reinforce its injection of stimulus in June, July and October.

Reflecting on the board’s minutes, ANZ Research observed that recent economic indicators would suggest that a rate cut is on the cards.

“Whether that reassessment results in a rate cut will depend on whether the ‘gentle turning point’ identified by the RBA is still evident,” the group noted.

“Weaker-than-expected Q3 GDP data and the fall in October retail sales challenge that judgment, though the bank’s liaison program had pointed to nominal year-ended sales growth [being] little changed in October and November.”

The research group added that upcoming labour market data would be “key” in determining the central bank’s next monetary policy decision.

“Further weakness will mean labour market conditions can no longer be characterised as ‘broadly unchanged since earlier in the year’ and will, in our view, be the catalyst for a rate cut in February,” ANZ Research concluded.

Shane Oliver, chief economist at AMP Capital, is expecting back-to-back cuts in February and March, which would take the cash rate to 0.25 per cent.

According to Mr Oliver, the RBA would then consider quantitative easing in the absence of fiscal policy stimulus in the federal government’s budget in May.

[Related: RBA unveils pre-Christmas cash rate]