Australian central bank governor says jobs key for further rate cuts

[SYDNEY] Australia's central bank would see a strong case for cutting its benchmark interest rate from current record lows if the unemployment rate moved higher and there was no progress in lifting inflation, Governor Philip Lowe said on Wednesday.

The unemployment rate eased to 5.1 per cent in December while the latest data showed inflation had ticked higher, implying there was no urgency to lower rates.

Indeed, the Reserve Bank of Australia (RBA) left its cash rate at 0.75 per cent its first meeting of the year on Tuesday after three cuts last year. It also sounded doggedly upbeat about the economic outlook despite devastating bushfires at home and a viral epidemic in China.

In a speech in Sydney, Mr Lowe said Tuesday's decision reflected a "judgement about the benefits from a further reduction in interest rates against some of the costs and risks associated with very low interest rates."

On the one hand, Mr Lowe said further easing would help indebted households and in turn support private consumption strengthens. It would also lower the local dollar, boosting demand for exports and supporting jobs.

On the flip side, very low interest rates could pump up asset prices, dent consumer confidence and encourage more borrowing by households eager to buy residential property.

Mr Lowe said the board is "continually" looking at both sides of the equation.

"If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change," he said.

"In those circumstances, the Board would see a stronger case for further monetary easing," Mr Lowe added.

"We will continue to monitor developments carefully, including in the labour market, as we seek to strike the right balance in the interests of the community as a whole."

Financial markets are fully pricing in a cut to 0.50 per cent in June and a 50-50 chance of another easing later in the year, having pushed back expectations after the RBA's Tuesday rate review.

REUTERS