RBA happy to sit on rates sideline

By Ed Logue, AAP, 16 June 2009

THE Reserve Bank saw no pressing need to cut interest rates in June given signs of a stabilising global economy.

On June 2, the central bank left the overnight cash rate steady at a 49-year low of 3 per cent for a second consecutive month.

Minutes of that central bank board meeting, released today, show board members noted data showing the global economy was steadying following two very weak quarters in December 2008 and March this year.

The board also noted a pick-up in industrial production throughout Asia, particularly in China - Australia's second largest export market.

Members noted the very large increases in fixed capital investment by the public sector and the strong credit growth.

They also noted that the value of exports had shown few signs of recovery after falling by around 25 per cent over the past year.

Tentative indicators showed the downturn in the domestic economy was not as harsh as in most other nations, giving the board room to leave its monetary policy axe on the sidelines in June.

"Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for further easing of monetary policy, if that were to be needed to support demand at a later stage," the minutes said.

The local economy was benefitting from historical low interest rates and extra government spending, which "represented the largest macro-economic policy stimulus over recent decades", board members noted.

Members of the board were cautiously optimistic about a gradual recovery in the local economy, with recent data indicating stronger growth than previous forecasts.