The RBA minutes for this month’s meeting are out and while they say once again that “the current stance of monetary policy continued to be appropriate for fostering sustainable growth in demand and inflation outcomes consistent with the target. Members considered that the most prudent course was likely to be a period of stability in interest rates,” the overall tone of the minutes is one of economic caution which, given the meeting was before the weaker Q3 GDP report this month, leaves the door ajar for a rate cut in 2015.
From a market price action and trading point of view, the most interesting comment is that the RBA thinks that the Fed’s end to QE will be more than compensated by the operations of the BoJ and ECB noting that this “would result in total liquidity provided by major central banks increasing at a similar pace to that observed over recent years”. But the RBA notes this is likely to be against a backdrop of rising rates.
Closer to home the RBA doubled down on the jaw-boning that the Aussie dollar is too high, saying:
“Despite the depreciation of the exchange rate, the Australian dollar remained above most estimates of its fundamental value, particularly given the significant declines in key commodity prices over recent months. Members agreed that further exchange rate depreciation was likely to be needed to achieve balanced growth in the economy.”
Given a cooling housing market and the Government’s expectation that unemployment is going to rise to 6.5%, the comment that housing was supporting consumption but is being tempered by weak labour market conditions, which would weigh on consumption and sentiment, suggests that those expecting a rate cut in 2015 could be right.
You can read the full minutes here.