Rba keeps close eye on china and greece

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THE Reserve Bank will keep a close watch on China’s stock markets, the Greek debt crisis and soft local business investment to assess whether further rate cuts are needed.

The RBA cut the cash rate to a historic low of two per cent in May and has left rates on hold at its June and July meetings.

In the minutes of the July meeting, released on Tuesday, the central bank said international and local economic news would play a part in future rate decisions.

Information to be received over the period ahead on economic and financial conditions would continue to inform the boards assessment of the outlook, the RBA said.

That assessment would inform whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target, it said.

The Reserve Bank said economic growth in Australias major trading partners was around average, but key considerations remained turbulence on Chinas stock markets and Greeces ongoing debt saga.

Recent volatility in Chinese equity markets and potential spillovers from developments in Greece would require close monitoring, the RBA said.

But the direct impact of any further Greek turmoil was likely to be relatively limited, it said.

The minutes come after a breakthrough in Greeces debt negotiations with its international creditors on a third bailout deal, and big falls on Chinese equities markets earlier in July despite measures by Chinese authorities to support the market.

The RBA said the local economic picture remained largely unchanged from previous months, with low interest rates supporting housing investment and consumption growth, while mining and non-mining investment remained weak.

Nevertheless non-mining business profits had increased over the past year and surveys suggested that business conditions had generally improved, the RBA said.

The national housing market was little changed, with Sydney experiencing notable strength, and the effect of greater regulator scrutiny of investor remains unclear, it said.

The Australian dollars drop against the US dollar to levels not seen since 2009 was not boosting the economy by as much as the bank expected.

Further depreciation seemed both likely and necessary, the RBA said.

The bank noted signs of continued improvement in the jobs market, and said inflation remains well contained.