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Reserve Bank of Australia awaiting new data before considering rate move

By David Gordon

An interest rate cut next month looks almost certain if inflation remains benign, according to the minutes from this month’s Reserve Bank meeting.

The minutes released today show the RBA board believes there is scope for another rate cut as economic growth slows in Australia and amid concerns that unemployment is on the rise.

Despite concerns about the softening labour market, the RBA kept rates steady at 4.25 per cent at its April meeting, but the board noted the “sharp differences” in performances across the two-speed economy as well as the weakening housing sector as key concerns.

“Members noted that an easing in average hours worked and a decline in the participation rate were indicative of a softer labour market than that implied by the unemployment rate,” the minutes said.

The RBA also acknowledged growth for the global economy was expected to be at a below trend pace in 2012 because of ongoing economic weakness in Europe and a slowing of growth in China.

“However, growth in Australia’s major trading partners, weighted by shares of merchandise exports from Australia, was expected to be around average in 2012,” the minutes said.

“This would be underpinned by the continued economic recovery in the US, the prospect of still solid growth in China, and a recovery in activity in other parts of east Asia.”

The key to the RBA’s decision for rates in May will be the release of the consumer price index (CPI) inflation data for the March quarter next Tuesday, a week before the RBA’s next board meeting.

“If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing in monetary policy,” the RBA minutes said.

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