RBA minutes: Significant additional colour around the current thinking – Westpac

According to Matthew Hassan, Research Analyst at Westpac, the minutes of the Australia’s Reserve Bank Board’s July monetary policy meeting provide some significant additional colour around the Bank’s current thinking.

Key Quotes

“The main points of interest are: 1) a slightly more tentative tone around the outlook; 2) the reinstated line that the next cash rate move “would more likely be an increase than a decrease” but with a clearer qualification that this would not be any time soon; 3) expanded comments on the rise in bank funding costs, albeit without any strong conclusions; and 4) additional commentary about a ‘special paper’ prepared for the meeting on Australian household debt.”

“As to be expected, the main discussion was as per the Governor’s post-meeting decision statement: a little less positive on the global front, acknowledging uncertainty around trade policy abroad and rising short term wholesale interest rates locally, but assessing the Australian data flow as in line with the Bank’s above trend growth view, with a slightly firmer outlook for labour markets but key uncertainties still hanging on the outlook for the consumer.”

“However, there were some notable shifts in the closing paragraphs of the ‘Considerations for Monetary Policy’ section, which sets out the decision rationale and framework for policy decisions going forward. Usually this just reprises the closing paragraphs from the Governor’s decision statement. However, the July minutes provide quite a bit more colour.”

“The commentary provides a clearer framework for future policy as well.”

“The bottom line is that official rates are not moving up any time soon.”

“There were many other points of interest in the remainder of the minutes, which were the longest in word count terms since the RBA began publishing full meeting minutes in 2006. Many of these were more optimistic than the comments we have singled out – household labour incomes and labour market vacancy rates for example were noted as positives domestically, as were the contributions from public sector activity, infrastructure investment, non-mining business investment more generally, a rise in the terms of trade and evidence of rising wage pressures in major economies abroad.”

“Overall though the additional colour from the July meeting minutes again underscores that policy is firmly on hold. We remain of the view that the RBA will leave the cash rate unchanged throughout 2018 and 2019.”