The Reserve Bank has today released the minutes to its board meeting earlier this month and they reveal the central bank appears concerned about the up-tick in borrowing for investment properties as well as the overall level of growth in the economy.
Indeed in reading the ‘Considerations for Monetary Section’ at the end of the minutes it would be easy to think that this is a board edging toward an outright easing bias, if not a rate cut. But of course we have housing to thank for the RBA board’s caution.
The RBA noted that monetary policy is accommodative and rates remain low but highlighted concerns over investment lending saying that competition had driven rates even lower recently and that, “In this context, members discussed the importance of lenders maintaining strong lending standards and the ongoing dialogue between the bank and APRA on the matter.”
But the minutes also highlight that the economy is only experiencing moderate growth, which is “most apparent in the housing market” while the labour market remains soft and the Aussie dollar is still – even around the low of the year when the meeting was held – too high.
“Despite the easing in financial conditions associated with the depreciation of the Australian dollar, the exchange rate remained high by historical standards – particularly given recent declines in key commodity prices – and was offering less assistance than would normally be expected in achieving balanced growth in the economy,” the RBA said.
While the RBA maintained the language that, “the current stance of monetary policy continued to be appropriate for fostering sustainable growth in demand and inflation outcomes consistent with the target over the period ahead. Members considered that the most prudent course was likely to be a period of stability in interest rates,” it is also clear that the RBA still sees an economy struggling to make the transition away from the mining investment boom.