Dec. 18 (Bloomberg) -- The Reserve Bank of Australia decided to cut interest rates to match the half-century low set during the 2009 global recession as a softer job market gave it room to bolster demand, minutes of its Dec. 4 meeting showed.
“The information on labor costs and softening labor market conditions suggested that the inflation outlook still afforded the board some scope to provide additional support to demand,” according to the minutes released today in Sydney. “Further confirmation that the peak in resource sector investment was near, and that the short-term outlook for non-resource investment remained subdued, indicated that there was a case for the board to provide that support.”
RBA Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 3 percent at the gathering, the sixth cut for a total of 1.75 percentage points since Nov. 1, 2011. The benchmark matched the level reached from April-October 2009 that was the lowest since 1960.
The minutes indicated that, with data on gross domestic product and November employment due out later in the week of the board’s meeting, there was some discussion about whether to wait for more evidence before easing.
“The board considered whether to respond to this case in the near term or wait for further information,” the minutes said. “On balance, members saw merit in reducing the cash rate at this meeting.”
Stevens is aiming to rebalance a two-speed economy, where mining regions in the north and west thrive while manufacturers, builders and retailers in the south and east struggle. The local dollar’s 55 percent climb in the past four years has hurt exporters, forcing them and other companies to adapt.
The so-called Aussie bought $1.0552 at 12:16 p.m. in Sydney, compared with $1.0542 before the minutes were released.
Prices of iron ore, the nation’s most valuable commodity export, have rebounded since reaching a three-year low on Sept. 5 after China announced spending on new subways and roads.
Weaker prices for raw materials last quarter and the elevated currency prompted mining companies including BHP Billiton Ltd. and Fortescue Metals Group Ltd. to put off projects and cut jobs.
“Cost-cutting in the iron ore and coal industries was feeding through to related business services industries, resulting in some labor shedding,” the minutes showed.
The minutes said global economic news over the past month had a “slightly more positive tone,” with China’s slowdown more stable, the U.S. growing at a “moderate pace” while contractions continued in Japan and the euro area.
Since the RBA board’s last meeting, a government report showed the domestic economy slowed last quarter on tighter government spending and the weakest consumer demand in 2 ½ years.
Third-quarter GDP advanced 3.1 percent from a year earlier after a revised 3.8 percent expansion in the April-June period, a Bureau of Statistics report released Dec. 5 showed. Growth was 0.5 percent from the previous three months, when the quarterly gain was 0.6 percent.
A Dec. 6 report showed a resilient labor market. Australia’s unemployment rate unexpectedly dropped in November as mining-industry hiring helps the economy weather a global slowdown. The jobless rate fell to 5.2 percent from 5.4 percent in October, the statistics bureau’s report showed. The number of people employed advanced by 13,900, compared with the consensus forecast for no change.
“Business surveys and information from liaison suggested that businesses across of a range of industries anticipated an easing in wage pressures in the period ahead,” the minutes showed. “Forward-looking labor market indicators had generally declined recently, suggesting that employment growth would remain modest in the months ahead.”
A clouded global outlook is weighing on households. Australian consumer confidence slumped by the most in nine months as concern about economic prospects and unemployment overshadowed the central bank’s interest-rate cuts, a private survey showed last week. The sentiment index for December dropped 4.1 percent to 100, a Westpac Banking Corp. and Melbourne Institute survey taken Dec. 3-9 of 1,200 adults showed.
The RBA’s next scheduled meeting is on Feb. 5. Investors were pricing in a 58 percent chance that the central bank will lower the key rate to 2.75 percent at that meeting and a 19 percent probability the benchmark will be 2.5 percent a month later, according to interest-rate swaps data compiled by Bloomberg earlier today.
Nineteen of 25 economists in a Bloomberg survey this week predicted no rate change at the February meeting, while 12 of 25 forecast a quarter percentage-point reduction at the scheduled March 5 review.
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