Minutes from the Reserve Bank's (RBA) October Monetary Policy Meeting revealed the Bank weighed up a cash rate cut but questioned the effectiveness in the current economic climate.
"They [Board members] recognised that some parts of the transmission of easier monetary policy had been impaired as a result of the restrictions on activity in parts of the economy," they said.
"However, as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier."
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
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The RBA noted the effect a cash rate cut had on consumer confidence and would likely cause further cuts to already abysmal savings account rates.
"Members also considered the effect of lower interest rates on community confidence and on those people who rely on interest income."
Speculation has been rife the central bank will cut the rate to a new record low of 0.10%, with economists from Westpac and NAB forecasting a cut at the November meeting.
The central bank said further monetary easing was likely to bring about greater financial stability benefits from a stronger economy but noted the risks that came with this.
"A further easing would help to reduce financial stability risks by strengthening the economy and private sector balance sheets, thereby lowering the number of non-performing loans.
"This benefit would need to be weighed against any additional risks as investors search for yield in the low interest rate environment, including those resulting from higher leverage and higher asset prices, particularly in the housing market.
The Board again ruled out negative interest rates and said the cash rate wouldn't be raised until progress was made towards full employment and inflation sat firmly in its desired 2-3% band.
Overall the RBA said the Australian economy had performed well compared to global counterparts, with unemployment not set to reach the 10% mark they had previously forecasted.
"Labour market conditions had improved somewhat over the preceding few months, with the unemployment rate likely to peak at a lower rate than earlier expected," it said.
"Nevertheless, both unemployment and underemployment were expected to remain high for an extended period."
The RBA said the record low cash rate had contributed to steady growth in owner-occupier lending but wary investors were yet to re-enter the market.
"Commitments for housing loans to owner-occupiers had picked up further in August across all states, consistent with a general increase in activity in the housing market."
"By contrast, credit to investors in housing had remained weak, although it had stopped declining in August.
"Following an earlier tightening in response to the pandemic, more recently constraints on the supply of housing finance had eased slightly."
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