The door is open, but the RBA does not need to cut rates

The RBA is clearly concerned about the global economy. However, the Banks's recent minutes were almost upbeat on the domestic economy, suggesting on this basis at least the glass may be assessed as being more half full than half empty. And although it does not seem to be getting fuller faster, it may not get any emptier. That is to say, although domestic downside risks remain, they may be gradually fading, at least for the time being.

"We have characterized this as risks shifting gradually from the business sector toward the household sector. Survey business sentiment is passable, but not outperforming as yet despite hopes for further improvement with the change in government leadership. Yet surveyed conditions are improving steadily in trend terms and we continue to highlight that on a historical basis it unusual for the RBA to be easing monetary policy while this is the case. We also noted consumer confidence remains subdued and will be unlikely to return to pre-financial crisis levels any time soon. And although pressure on households will remain we have notseen any signs yet that we should not continue to expect a gradual improvement in this space",says BofA Merrill Lynch.

 In line with this thinking, the RBA highlighted in its recent minutes that "GDP growth had been below average over the past year, but there had been further evidence of rebalancing from the resources sector towards non-mining activity". Importantly "it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment". This reinforces that the RBA is notseeing further deterioration in the domestic economy.