The minutes to the RBA’s June monetary policy meeting mainly reiterated the key points from the Governor’s decision statement and the additional ‘message’ from previous minutes – that the Bank’s main focus was on developments in labour and housing markets, according to Matthew Hassan, Research Analyst at Westpac.
“That said, there were some notable details: an intriguing new paragraph on financial stability in the ‘Considerations for Monetary Policy’ section; a slightly more bullish/hawkish discussion of international conditions; and several useful snippets from the detailed discussion including those gleaned from the Bank’s liaison programme.”
“As per the Governor’s decision statement, the slower growth picture for the March quarter was acknowledged but attributed to “quarter to quarter variation” with the Bank’s positive medium term outlook for growth to rise to a little above 3% reaffirmed.”
“The labour market commentary in the minutes was perhaps a little more positive than in the Governor’s statement which explicitly described indicators as “mixed”. The minutes do not use this particular term although the rest of the discussion is the same. Note that the RBA meeting took place well before the surprisingly strong May labour force report released last Thursday.”
“The more constructive view around business investment that appeared in the decision statement was largely repeated, the detailed discussion downplaying the disappointing forward view from the Capex survey, citing its limited coverage and more positive tone from approvals, liaison feedback and business surveys.”
“Turning to the ‘notable details’, the new paragraph on financial stability added to the ‘considerations’ section notes this aspect of the RBA’s role sits within its wider medium term inflation targeting framework, the effect of monetary policy decisions within this framework and the role of prudential supervision. It stresses the importance of cooperation and coordination across agencies facilitated by the Council of Financial Regulators. While there are no ‘overt’ messages in the discussion, its inclusion is intriguing. Is it, for example, implying that a coordinated approach may also apply if the RBA were to consider additional rate cuts? Alternatively, is it simply restating the clear message the Bank has already given about the importance of financial stability concerns for policy and a broad endorsement of the current status quo?”
“The June meeting minutes sounded less wary on international conditions and more alert to a potential lift in inflation. Whereas previous minutes regularly noted risks to China around residential property markets and rising leverage in the Chinese economy, this line did not feature in June which ran with simpler observations including that the “recovery in residential construction had continued despite the Chinese authorities having again tightened policy measures aimed at reducing speculative activity”.”
Monetary policy clearly remains firmly on hold as the Board assesses developments in housing and labour markets. The strong May labour force report released the week after the Bank’s June meeting would have eased some of its concerns on this front, although weak wages growth is likely still a factor (indeed this is one aspect of current conditions that could have received more discussion in the minutes which simply noted the link to consumer incomes and spending). It may also be becoming more comfortable around housing market risks as well although the situation here is clearly still evolving.
Overall there appears to be little shifting the Bank away from its positive medium term view on growth. Westpac’s more downbeat forecast for 2018 – based on a more significant drag from housing construction and falling commodity prices – will take time to become apparent and, in our view, will not be sufficient to draw an RBA interest rate response, particularly given its concerns about potential financial stability risks. As such we remain comfortable with our view that rates will remain on hold for the remainder of 2017 and 2018.”
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