RBA feeling more comfortable: ANZ's Felicity Emmett

RBA feeling more comfortable: ANZ's Felicity Emmett
RBA feeling more comfortable: ANZ's Felicity Emmett


The minutes from the RBA’s December Board meeting, at which the cash rate was left unchanged at 2%, don’t give too much new information on the Bank’s thinking but have a marginally more positive tone. 

On household consumption, the RBA seems less worried about the outlook, noting the improvement in retail conditions and removing the reference to the risks to the outlook included in the minutes from the November meeting. The Bank is expecting consumption growth to lift to above-average rates from 2016, and while retail outcomes have improved, we continue to see this forecast as somewhat ambitious, given soft wages growth is likely to weigh on consumption for some time. 

The Board seems broadly comfortable with the housing outlook, noting that dwelling investment is likely to continue to grow but at a slower rate. The minutes did, however, highlight that it was still too early to assess the effect of the recent increase in lenders’ mortgage rates on the housing market. 

On non-mining business spending, the Board seems almost unperturbed by the weakness in the CAPEX survey, noting that while non-mining business investment intentions remained weak, business condition were “clearly above average” in the household and business services sector, which were less capital intensive. 

On the labour market, while noting the improvement in the unemployment rate and measures of job vacancies, the Board continues to point to soft wages growth as evidence of spare capacity in the labour market. 

On the AUD, the minutes contained very little commentary, only noting that the AUD had appreciated against the USD “in contrast to most other currencies”. 

Consistent with the post-meeting statement, the minutes again noted that the “outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand”. 

We continue to expect the RBA to cut rates next year. We recently pushed back the timing of those moves, and now expect the Bank to cut rates by 25bps in May and August. We still expect the stimulus from housing and the lower AUD to fade next year, but the recent strength in the labour market precludes a cut as early as February. For 2016, there is also a possibility that further rises in lending rates from the banks, to offset regulatory changes that have raised minimum capital requirements, would cause an unwelcome tightening of financial conditions. With the inflation outlook providing no impediment to lower rates, we think the Bank has scope to provide further stimulus. 

This week’s FOMC meeting will also be important to the monetary policy discussion, firstly, to gauge the market impact of the first Fed rate hike in nearly a decade; and secondly to absorb the Fed’s forward guidance on the likely trajectory of US interest rates. 

We are also likely to get a further update on the Bank’s thinking over the next week or so, with a newspaper interview with Glenn Stevens likely to be published, consistent with the experience of the past few years.

Felicity Emmett co-head of Australian economics, ANZ Research and can be contacted here.

Interest Rates

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?