As expected, the RBA left interest rates unchanged at 2.00% at its October policy meeting.
In line with the rate decision, the accompanying monetary policy statement was a near carbon copy to that released in September, with a few exceptions.
Perhaps the biggest change was on the perceived risks stemming from Australia’s residential property market.
In its September policy statement the board acknowledged that they were “working with other regulators to assess and contain risks that may arise from the housing market.” In response to signs that activity in residential property markets may be cooling, the RBA noted in October that “regulatory measures are helping to contain risks that may arise from the housing market”.
In essence they have reviewed the financial and economic risks attached to the housing market, and believe that recent regulatory changes to slow lending growth, particularly to investors, are now helping to contain risks that may arise from strong house price growth, particularly along Australia’s eastern seaboard.
Despite the change in language towards risks in the housing market, the RBA acknowledged that “dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities.” This is a change from September where they noted that only Sydney property prices had risen strongly.
Aside from those tweaks on recent developments in the housing market, the board also suggested that “in Australia, the available information suggests that moderate expansion in the economy continues”. This is a change from September where they suggested that “most of the available information suggests that moderate expansion in the economy continues”.
Those changes aside, the statements were almost identical aside from an admission that financial market volatility had continued.
Crucially, the final paragraph of the statement was unchanged from that produced in September.
“The Board today judged that leaving the cash rate unchanged was appropriate at this meeting,” they said.
“Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
This indicates that while the RBA have not completely closed the door on additional monetary policy easing, they have not yet decided whether or not it is required – they are simply waiting for additional economic data to arrive.
Given its proximity to when the RBA next meet in November, the September quarter CPI release on October 28 will be watched closely by the markets and RBA board alike.
The full October monetary policy statement released by RBA governor Glenn Stevens is found below.
“At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia’s terms of trade are falling.
The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy. Equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.
In Australia, the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities. Regulatory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”