(Recasts, adds analyst, market reaction)
* RBA board saw case for easing at Nov. 5 policy meeting
* Chose to gauge impact of past cuts, wary of blow to confidence
* Market narrows odds on Dec move, but still favours Feb
By Wayne Cole
SYDNEY, Nov 19 (Reuters) - Australia's central bank came nearer to cutting interest rates this month than first thought, according to a dovish set of minutes that led investors to narrow the odds on future easing.
The Reserve Bank of Australia's (RBA) policy-making Board "agreed a case could be made" for another cut in the 0.75% cash rate given unwelcome weakness in wages growth and inflation.
In the end, the Board decided to wait to assess the impact of the three cuts already delivered since June, though they left the door wide open to a further move if needed.
That was a surprise to many in the markets, which had priced in only a minor chance of a November easing, and rate futures 0#YIB: quickly lifted the probability of a quarter-point cut at its Dec. 3 meeting to 30% from 20%.
The local dollar dipped 0.3% to $0.6790 AUD=D3 in response, while short-term bond yields fell four basis points.
"This was a broadly dovish set of minutes, and at the margin makes December more "live" than it previously was," said Robert Thompson, a macro rates strategist at RBC Capital Markets.
The heavy betting was still siding with a pause until February, when a cut was penciled in as a 72% chance. The Board itself noted that further easing could have "negative effects" on savers and confidence.
Surveys of consumer confidence since June have shown a pattern of sharp falls after each rate cut amid worries the outlook would have to be grim indeed for rates to go so low.
ODDS-ON FOR FEB
"Given the latest weak labour force data, we remain inclined to think they put confidence concerns aside and cut again in February," said Thompson, referring to recent figures showing the biggest drop in monthly employment in three years.
The labour market has been one of the strongest sectors in the economy so any softness there would likely greatly add to pressure for further policy stimulus. Board had already noted that wage growth was no longer expected to pick up as long hoped, with the RBA's regular discussions with the business community indicating "very few" firms saw higher pay awards ahead.
"Members agreed that a further gradual lift in wages growth would be a welcome development and was needed for inflation to be sustainably within the 2-3% target range," the minutes showed.
Core inflation has been stuck below the band for the past four years and is not forecast to reach 2% until late 2021.
The RBA has been hoping the economy had reached a "gentle turning point" as past rate cuts supported activity through a lower local dollar, higher asset prices, particularly for homes, and lower borrowing payments.
The minutes will whet appetites for a speech by RBA Governor Philip Lowe on Nov. 26 entitled "Unconventional Monetary Policy: Some Lessons from Overseas."
Analysts generally assume the central bank would not want to take its cash rate below 0.5% and would have to resort to other stimulus steps such as asset purchases or lending to banks at super-low rates. (Editing by Simon Cameron-Moore)