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RBA Minutes: Further Rate Cuts Remain Possible


The members of the Reserve Bank of Australia's monetary policy board said that the Australian economy continues to expand below trend, and therefore will not absolutely rule out additional stimulus, minutes from the central bank's November 5 meeting revealed on Tuesday.

In addition, the members noted that the Australian dollar remains higher than the bank would prefer.

"Inflation remained within the target and the Australian dollar, while below its level earlier in the year, remained uncomfortably high. Members noted that a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy," the minutes said.

At the meeting, the RBA decided to keep its benchmark cash rate unchanged at a record low of 2.5 percent for a third consecutive time and said a lower Australian dollar may be needed to obtain balanced growth.

The board members added, however, that they wanted to make sure the stimulus that already been introduced to the economy has had an opportunity to take hold.

"The Board's judgment was that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target," the minutes said.

The RBA has reduced the cash rate by a cumulative 225 basis points since November 2011 on the premise that accommodative policy is needed to support demand in areas outside the resources sector, as the peak in mining investment approaches.

The Board expects private demand outside the mining sector to increase at a faster pace, though it sees considerable uncertainty surrounding this outlook.

There has been an improvement in indicators of household and business sentiment recently, but the central bank said it is too early to judge how persistent this will be. The bank also expects public spending to be quite weak going forward.

The RBA also maintained assessment on inflation, saying that recent data on prices showed inflation consistent with the medium-term target and that this is likely to remain the case over the next one to two years.

"The Board would continue to examine the data over the months ahead to assess whether monetary policy remained appropriate," the minutes said.

Also on Tuesday, an index measuring the outlook for the Australian economy moved up 0.3 percent in September, the Conference Board revealed, following the 0.2 percent contraction in August and the 0.2 percent gain in July.

The board's coincident index added 0.1 percent following no change in the previous two months.

The leading index is continuing a slight upward trend, the Conference Board said, while the coincident index has shown little movement through the last six months.

Through the last six months, the leading index had added 0.6 percent, while the coincident has gained 0.2 percent.

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