Australia’s central bank policy makers said they have scope to cut interest rates further after pausing this month to assess the impact of record reductions in benchmark borrowing costs and increased government spending.
Board members saw “reasonable cases” for both pausing to evaluate the economy and cutting the official cash rate target from a 45-year low of 3.25 percent, the Reserve Bank of Australia said in minutes of its March 3 meeting, released in Sydney today.
Governor Glenn Stevens and his board left the benchmark lending rate unchanged for the first time in seven months amid signs the “monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect,” the minutes said. Still, the size of this boost “remained unclear” and was likely to take time to become evident.
Leaving the cash rate unchanged “would leave adequate flexibility for policy at future meetings,” today’s minutes said.
The bank’s four percentage points of reductions in the benchmark rate between September and February, as well as the government’s decision in February to spend A$42 billion ($28 billion) on handouts and infrastructure, preceded official figures on the “extent of economic weakness,” the minutes said.
Australia’s dollar declined to 65.78 U.S. cents as of 11:33 a.m. in Sydney, from 65.91 cents before the minutes were released.
A report published one day after the bank’s March meeting showed the economy unexpectedly shrank 0.5 percent in the fourth quarter, the first contraction in eight years. Board members had expected a “small fall” in growth.
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