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Reserve Bank to reveal rate cut thinking

Australia’s central bank will reveal its thinking behind last week’s cash rate cut, and where the economy is heading, when the minutes of its board meeting are published on Tuesday.

The cash rate sits at 1.0 per cent having been cut by 0.5 percentage points over the past two months to spur on the economy.

It had remained at 1.5 per cent since August 2016.

Reserve Bank Governor Philip Lowe says the second cut in July should put the economy on a “better path”, but he also left the door open for another move before Christmas if things don’t improve.

The release of the minutes comes as a new report on Australia’s business outlook shows income tax cuts and a pipeline of coal and iron ore exports to China are pointing to good news for the economy.

Consumer and business confidence are also expected to pick up, with the federal election out of the way.

But leading forecaster Deloitte Access Economics says the drought and the downturn in housing prices are hurting the economy.

To start driving unemployment down from its current level of 5.2 per cent to 4.5 per cent, the economy needs to create an extra 200,000 jobs, which will require governments and the RBA to put all shoulders to the wheel, the forecaster says.

Any rise in the jobless rate, when official figures are released on Thursday, is likely to trigger another rate cut in August.

Treasurer Josh Frydenberg says the economy faces some challenges but is continuing to grow and there is “real money” flowing to Australians as a result of tax cuts and other initiatives.

Shadow treasurer Jim Chalmers says there is “troubling complacency” in government ranks over the real state of the economy, which is growing at the slowest pace in 10 years, while wages are “remarkably stagnant”.

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