According to the analysts at Westpac, the minutes of the Reserve Bank Board’s March monetary policy meeting conveyed a more downbeat tone than the Governor’s decision statement, the commentary sounding a little more concerned about labour market conditions, household incomes and risks in the housing market.
“The Bank’s central case is still constructive: “Looking forward, year-ended growth … expected to pick up gradually to be above its potential rate over the forecast period” with spare capacity expected to decline slowly and underlying inflation to gradually rise.”
“The global backdrop is also noted as a clear upside with a marginally more constructive view on commodity prices (“the recent improvement in global demand suggested that higher commodity prices could be more persistent than previously anticipated”). However, links back to domestic demand are again questioned with the boost to mining sector profits seen flowing more to dividends than spending with significant ‘leakage’ to non-resident shareholders.”
“Business and consumer confidence rates less of a mention, with just a watered down comment “household perceptions of their personal finances had also been around average”. The Westpac-Melbourne Institute Consumer survey has shown a material weakening in this component in recent months.”
“The minutes seem much less certain about labour markets. For example, whereas the Governor’s decision statement noted “forward–looking indicators point to continued expansion in employment over the year ahead” the minutes are more tentative saying they “suggested that there could be some pick-up in employment growth near term“ also suggesting that the labour market “may not be quite as strong as the headline employment and unemployment rate figures indicated”.”
“The minutes strike a different tone on housing as well, referring to “a build-up of risks associated with the housing market”. That language seems a little more urgent. Also notable is the link drawn between incomes and housing risks:”… household income growth had been low, which, if it were to persist, would have implications for consumption growth and the risks posed by the level of household debt.” Members also noted that “although credit growth was lower than in previous decades, it had been faster than the subdued growth in household incomes”. This is important from the point of view of potential changes to macro-prudential policy.”
“The RBA’s next Financial Stability Review, due April 13 may provide more elaboration on these comments.”
While still presenting a constructive growth view on global and local growth prospects, the minutes to the March RBA meeting place more emphasis on weaknesses around labour markets and the consumer and downplay the potential upside from rising commodity prices. They also sound a touch more urgent around risks in the housing market. That mix points to an RBA that is slightly more dovish stance on rates but potentially mulling ‘macro-prudential’ policy changes to manage risks.”