RBA minutes also note the increased uncertainty: Felicity Emmett

RBA minutes also note the increased uncertainty: Felicity Emmett
RBA minutes also note the increased uncertainty: Felicity Emmett


The September RBA Board meeting followed a period of substantial turbulence in international financial markets, and as such the focus of today’s minutes was always going to be on the comments on the international environment.

Not surprisingly, the verdict from the minutes is “overall, international economic developments had increased the downside risks to the outlook”.

But the minutes also note the increased uncertainty surrounding the outlook – noting that “it was too early to assess the extent to which this would materially alter the forecast for GDP growth in Australia’s trading partners”. And on China, “the recent volatility in Chinese equity markets was not expected to have a significant direct effect on the near-term economic outlook” and “it was too early to assess accurately the effect of several recent policy changes designed to support activity”.

On the whole, it seems that impact on the Australian economy of the recent global developments is difficult for the RBA to fully gauge at the moment.

Consistent with the post-meeting statement, there was very little change to the language or tone of the comments on the domestic economy. While the meeting predated the release of the weak Q2 GDP data, the number was in line with the Bank’s expectation and the details of the report are likely to be broadly consistent with the Board’s characterisation of the domestic economic environment.

The minutes did note however that “recent indicators of consumer sentiment and retail sales had been consistent with some increase in consumption growth”. However, since the meeting, the Q2 national accounts showed consumer spending rose just 0.5% q/q, July retail sales fell 0.1% m/m and consumer confidence has fallen 7%.

The minutes also noted that the recent CAPEX survey suggests some downside risks to the Bank’s mining investment forecasts, raising the potential for a further downgrade of the Bank’s GDP forecasts.

And while the Bank is clearly encouraged by the strength in employment growth and the increase in the employment-to-population ratio, the minutes again highlight that space capacity remains in the labour market and wage pressures continue to be weak.

Overall, the minutes suggest an increased level of uncertainty about the outlook, particularly on the international front. Clearly the evolution of the economic data coming out of China will be important, as well as the ramifications of any Fed rate hike. Domestically, business confidence and conditions, retail sales and employment data will continue to be keenly watched for guidance on the outlook.

Given that growth remains soft, and the data very patchy, we continue to expect the cash rate to remain on hold, although recent developments suggest that the risks have further tilted towards lower rates. 

Felicity Emmett is co-head of Australian Economics, ANZ Research. You can follow her on Twitter here.


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