RBA minutes: Unchanged policy consistent with sustainable growth and inflation target

The minutes of the February RBA moneary policy meeting, when interest rates were held unchanged at 1.5%, have been released.

As the RBA minutes notes: "In considering the stance of monetary policy, members viewed the near-term prospects for global growth as being more positive, although recognised the risks from policy uncertainty in the medium term."

On the AUD, the RBA said: " The depreciation of the exchange rate since 2013 had also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment."

The RBA adds: "Taking account of all the information available, including the updated forecasts, an assessment of the risks affecting these forecasts and the level of the cash rate, the Board judged that holding the stance of policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time."

Considerations for Monetary Policy

In considering the stance of monetary policy, members viewed the near-term prospects for global growth as being more positive, although recognised the risks from policy uncertainty in the medium term. Stronger growth had contributed to higher inflationary pressures, including higher commodity prices, which had implications for the future stance of monetary policy in the advanced economies in coming years. Long-term bond yields had moved higher in many advanced economies.

Domestically, the economy was continuing its transition following the end of the mining investment boom. The fall in GDP in the September quarter had reflected some temporary factors. Looking forward, resource exports were expected to make a significant contribution to growth over the forecast period and the drag on growth from falling mining investment was expected to wane. The depreciation of the exchange rate since 2013 had also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment. Consumption growth was expected to be stronger than the subdued outcomes in the middle of 2016, supported by low interest rates. However, the increase in consumption growth was expected to be limited given the forecast for subdued growth in household incomes. Non-mining business investment was also expected to gain some momentum. The outlook continued to be supported by the low level of interest rates.

Labour market outcomes had been mixed and, as a result, there was uncertainty about the momentum in the labour market. The unemployment rate had increased slightly at the end of 2016, but full-time employment growth had increased, having fallen throughout most of the year. The unemployment rate was forecast to edge lower, which implied that spare capacity would persist in the labour market for some time.

Conditions in housing markets varied considerably across the country. Housing prices and rents had been falling in Perth and there were signs that the significant increase in the supply of apartments had begun to affect prices and rents in Brisbane. In contrast, activity in the established housing market had picked up in Sydney and Melbourne in the second half of 2016, and investor credit growth had increased. Supervisory measures had strengthened lending standards and some lenders were taking a more cautious attitude to lending in certain segments.

Inflation outcomes for the December quarter were much as had been expected and there had been very little change to the forecast for inflation. Labour cost pressures were expected to build gradually from their current low levels as spare capacity in the labour market diminished and the effect of heightened competitive pressures on retail prices eased. Medium-term inflation expectations had remained well anchored and inflation was expected to increase gradually.

Taking account of all the information available, including the updated forecasts, an assessment of the risks affecting these forecasts and the level of the cash rate, the Board judged that holding the stance of policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time.