The release of the minutes from the RBA’s August board meeting where they decided to cut rates to a record low of 1.5% are out and they suggest the bank has a continued bias to ease.
Like the governor’s statement earlier this month the minutes reflect a decision to cut was made because “the Board, on balance, judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting”.
That is well known.
But if you tick off the shopping list of reason behind the easing the RBA gives in the minutes it’s also clear that calls for lower rates by much of Australia’s economic fraternity are more likely than not to prove prescient.
Here’s a snapshot (our emphasis)
- On inflation: “… the recent CPI data had confirmed that inflation was likely to remain low for some time.”
- On growth: “… while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates”.
- On GDP specifically: “GDP growth had been stronger than expected in the March quarter, reflecting unanticipated strength in resource export volumes, it was expected to have been more modest in the June quarter”. They are expecting growth to pick up in 2017.
- On employment: As a result of an expectation that growth will pick up next year, “employment growth was expected to increase as a consequence and the unemployment rate was expected to fall marginally over the forecast period”.
- On housing: “… members noted that indicators for the established housing market in the first half of 2016 had pointed to an easing in conditions, including lower housing credit growth and an easing in housing price pressures”.
- On housing market risks: “… risks associated with rising household sector leverage and rapid gains in housing prices had diminished”.
- On the Australian dollar: The economy is still feeling the positive effects of the fall from the low 90 cent region but “an appreciating exchange rate could complicate this”.
The minutes also reflect a disquiet over the strange moves in currency markets with the board noting that the Yen’s depreciation was reversed after “it was apparent that the stimulus was more limited than expected”.
That suggests a pathway for RBA action should it choose to target the Australian dollar in the future.
But it is perhaps the uncertainty around the impact of expected rises in incomes on household behaviour which suggests the August rate cut will be followed by further nudges to get households spending with more rate cuts.
The minutes say that the RBA’s (our emphasis) “forecasts implied a further slight decline in the household saving ratio, but there was some uncertainty about whether households would respond to developments affecting their disposable incomes by adjusting consumption growth or altering their saving rates.