SYDNEY, Feb 6 (Reuters) - Australia's central bank on Wednesday opened the door to a possible rate cut if unemployment increased and inflation stayed tepid, although its main scenario was for economic growth to remain above trend and the jobless rate to tick lower.
The Reserve Bank of Australia (RBA) has left its official cash rate at a record low 1.50 percent since August 2016 and Governor Philip Lowe has repeatedly emphasised the next move in interest rates would be up, rather than down.
However, in a speech on Wednesday Lowe said rates could go either way, underscoring a remarkable shift in the RBA's long-held stance.
"Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced," he said in Sydney.
"In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point," Lowe added.
"We have the flexibility to do this if needed."
The RBA Board still does not see a strong case for a near-term change in the cash rate as policymakers assess the shifts in the global economy and the strength of household spending, Lowe added.
Lowe listed some downside risks to the RBA's outlook including the ongoing Sino-U.S. trade war, rise of global populism, Britain's complicated exit from the European Union, political headwinds in the United States and a cooling in China's economy.
Lowe also provided forecasts for Australia's A$1.8 trillion economy, with the central scenario for 3 percent growth over 2019 and 2.75 percent over 2020 - slightly weaker than previous predictions reflecting a modest downgrading of the outlook for household consumption and residential construction.
The RBA chief was confident such above-trend growth would lead to stronger wage growth and faster inflation, although a closely-watched measure of consumer prices is not seen hitting the mid-point of the Bank's 2-3 percent target band through 2020.
Lowe also spent considerable time talking about a downturn in Australia's once red-hot housing market, predicting the economy will weather the correction.
However, "continued low income growth, together with falling housing prices, would be an unwelcome combination and would make for a softer outlook for the economy," Lowe warned.
The RBA will be closely watching the labour market, which has been tightening since early 2017, sending the unemployment rate to over seven year lows of 5 percent.
If jobs growth continued and wages rose more quickly then "it will be appropriate to lift the cash rate at some point," Lowe said.
On the other hand, if the unemployment rate started to increase and inflation remained lukewarm the RBA may be forced to lower rates to further record lows, Lowe said.
"We have the flexibility to do this if needed."