The minutes of the RBA’s June monetary policy meeting have just been released and, yet again, there’s no sign of an explicit easing bias.
Here’s the key final paragraph on of the minutes which, while not closing off the possibility of further rate cuts, provided no explicit easing bias.
“Overall, in assessing domestic conditions and the international environment, the Board’s assessment was that the stance of monetary policy should be accommodative. Having eased policy at the previous meeting, members judged that it was appropriate to leave the cash rate unchanged and to assess information on economic and financial conditions as it became available. These data would inform the Board’s assessment of the state of the economy and the outlook and hence whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target”.
With the outlook for the the domestic labour market and inflation subdued, the minutes concentrated on two key domestic themes influencing monetary policy at present – developments in the established housing market and the outlook for business spending.
On developments in housing, a hot topic of conversation in Australia at present, the minutes noted that conditions varied greatly across the country.
“Although housing price inflation had remained high in Sydney and, to a lesser extent, in Melbourne over recent months, there had been some divergence in price developments for different segments of these markets; price inflation of detached houses had increased, whereas price inflation for units had eased in both cities. Noting that housing price growth in other cities and regional areas had declined over recent months, members discussed the strength and composition of underlying supply and demand conditions in different parts of the housing market. They also observed that there was a relatively low stock of dwellings for sale in Sydney and Melbourne and that dwellings took only a short time to sell”.
Related to the strength in housing, the minutes noted that in “recent months there had been solid increases in housing loan approvals to both owner-occupiers and investors, particularly in New South Wales, following earlier declines”. While there had been a noticeable acceleration in lending to finance property purchases, the minutes also noted that “a number of banks were reported to have tightened conditions on new loans to property investors and imposed restrictions on the extent of interest rate discounts”. The RBA suggested that “it would take some time for the full effects of such changes to be evident in the housing loan approvals and credit data”.
Housing market aside, there was plenty of focus on the outlook for business spending in the wake of the Q1 private new capital expenditure report released in the week before the RBA met.
“The available data suggested that private business investment had declined further in the March quarter, consistent with the forecast presented in the May Statement on Monetary Policy. Mining investment appeared to have fallen further, while non-mining investment looked to have been little changed over recent quarters. Members observed that there were diverging trends within the non-mining sector. Investment in some sectors, such as real estate and retail trade, had picked up in response to stronger growth in domestic demand, but investment had continued to fall in other sectors, such as manufacturing, where the rate of investment had been lower than the rate of depreciation in recent years. Members noted that a lower exchange rate would have an immediate beneficial effect on some sectors, such as tourism, but that it would need to be lower for a sustained period to have a significant effect on large investment decisions in other trade-exposed sectors”.
Underlining the final point in tn this assessment, as was the case in the June policy statement, the minutes convey the need for a lower Australian dollar.
“The exchange rate was close to the lowest levels seen earlier in the year, but members noted that the current level of the exchange rate, particularly on a trade-weighted basis, continued to offer less assistance than would normally be expected in achieving balanced growth in the economy. A further depreciation therefore seemed both likely and necessary, particularly given the significant declines in commodity prices over the past year”.
The question now is what will the RBA do next. It’s clear from both the minutes of its June meeting and monetary policy statement that they are now in ‘watch-and-wait mode” to see whether further policy easing will be required.
Incoming domestic data, particularly around business investment, the established housing market and household consumption, along with the future actions of the US Federal Reserve, will largely determine whether or not this will be required.