RBA June Minutes: “Glass-Half Full” outlook endures - ANZ

Domestic data over June have been mostly in line with RBA’s cautiously optimistic view of the economy as outlined in the minutes of June board meeting, at which the cash rate was held at 1.5%, explains Cherelle Murphy, Senior Economist at ANZ.

Key Quotes

“The RBA continues to forecast growth moving a little above 3% over the next couple of years as wages and prices pick up.”

“The minutes came ahead of the solid May labour force report but comments in the minutes suggest the data would not have overly surprised the RBA.”

“We continue to see the RBA on hold for the foreseeable future.”


The Minutes from the June RBA Board meeting updated its glass half-full view:

  • International economic conditions were noted to be improving although headline inflation had eased and core inflation remained low.
  • The RBA pre-empted the weak Q1 Australian GDP numbers, which were released the day after the meeting, but noted that it would not read more into them as they reflected “quarter-to-quarter variation in the growth figures”. In Q1 this included weather related events that slowed growth.
  • Since the RBA’s meeting on June 6, the May jobs report has been released, vindicating the RBA’s comment that forward indictors suggested a “gradual erosion of the spare capacity in the labour market”. Small improvements in the youth labour market were noted as were a pick-up in hours worked in the mining states of Western Australia and Queensland. The May labour force report showed the unemployment rate falling to a four year low of 5.5%. A net 42k jobs were created, following an upwardly revised 46k rise in April, and 53k in March.
  • The minutes characterise the wage price index growth of 0.5% in the March quarter as a sign that wages “had stabilised at low levels”. The bank noted that it’s liaison had found “localised and skills-specific labour shortages feeding into higher wages”.
  • Difficult conditions for retailers were noted, given low household income growth and concerns about debt, but the RBA noted that trading conditions in “appeared to have improved a little since the start of the year”.
  • Since the last meeting, housing finance commitments released for April showed a 3.1% fall in the investor segment. This would have been a pleasing development for the central bank and in line with their expectations due to increases in interest rates on investor loans and in interest-only loans. The minutes said the full effects of macro prudential measures would take time to flow through.
  • Being the first post-Commonwealth Budget board meeting, the minutes noted there was “little effect on the Bank's near-term outlook” due to minor fiscal changes.
  • The minutes said the “magnitude of the major bank levy was not particularly large compared with typical market movements in bank funding costs.” The Standard & Poor's rating downgrade for a number of the smaller Australian financial institutions, would lead to “some effect” but “these institutions accessed less wholesale funding than the major banks”.”

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