The Reserve Bank has left the door wide open to a pre-Christmas interest rate cut with its latest board minutes revealing the issue is clearly on its mind.
The minutes of the Melbourne Cup Day meeting, at which the bank left official rates at 3.25 per cent, show board members were swayed to sit on the sidelines because of a tick-up in inflation and better economic conditions overseas.
However, the minutes also clearly showed the bank mulling whether to cut on Melbourne Cup Day or wait until its December 4 meeting which will be the last of the year.
"The effects of the earlier reductions in the cash rate were, meanwhile, continuing to work their way through the economy, and members expected that further effects of these changes were yet to be observed," the minutes noted.
"Members considered that further easing may be appropriate in the period ahead."
The minutes show the bank believes the move by Wayne Swan to move the Federal Budget into surplus will cut overall economic growth by between 0.75 percentage points and 1.5 percentage points.
It said the economy was slowing, in part due to the downturn in the mining sector.
The bank believes there are early signs other, non-mining parts of the economy were picking up but they were still struggling.
"While a gradual recovery in both dwelling and other business investment was anticipated, assisted in part by the lower level of interest rates, there was also uncertainty about the timing and magnitude of this pick up," the minutes noted.
"Hence, there was uncertainty about the overall pace of growth of demand in the economy over the forecast period."
AMP Capital chief economist Shane Oliver took to Twitter to note the minutes showed the bank was still of a mind to cut rates, and that it probably would in coming weeks.
But TD Securities strategist Alvin Pontoh said it was clear there was no overwhelming case put at the meeting to slice rates.
"In any case, we see little or no trigger for a rate cut in December. The global economic outlook has not changed materially since the November decision," he said.
Reserve Bank governor Glenn Stevens is due to address the Committee for the Economic Development of Australia tonight at which he is expected to give more insight into the bank's thinking about the economy.