The RBA April board meeting minutes were released this morning. According to the minutes, the central bank is optimistic about the domestic economic developments, said St George Economics. However, the RBA raised worries about the stronger AUD and global conditions. But the minutes continue to imply that the central government continues to be calm about recent developments and does not plan on cutting rates soon. The central bank stated again that persistent low inflation will give leeway to further loosen policy if that is suitable to underpin the economy.
But, the RBA still remains optimistic that the needed rebalancing was taking place and that the economy will have continued growth. The minutes suggest that the central bank was quite positive about the economic indicators including dwelling investment, the labor market and the GDP. However, the RBA was not too upbeat about business investment outlook, but it said that the drop in Q4 was consistent will projections.
The Australian central bank was majorly worried about the strength of AUD. According to the minutes, the members stated that the rising exchange rate might create problems for “progress in activity rebalancing towards the non-mining sectors of the economy”.
Indeed, a suitable level of Australian dollar will rely very much on the commodity prices’ outlook, noted St George Economics. The central bank has signalled that it is slightly uncertain if the commodity prices’ current level will be sustained, especially iron ore’s price. Meanwhile, the central bank is also worried about the threats to financial stability from China and other emerging markets. It also noted the weakening of emerging economies’ activity.
The Australian central bank remains upbeat that the economic performance is well and implies that it is not expected to lower rates anytime soon. But the exchange rate level might concern the RBA if it continues to be at the current level or if it appreciates further, especially without a simultaneous rise in commodity prices.
“We believe that there is little fundamental reason to expect the AUD will sustain at current levels, unless commodity prices rise further from here”, said St George Economics.
The possibility of the central bank easing policy further will increase if the AUD appreciates further without the corresponding rise in commodity prices. But excluding this scenario, the economy is expected to expand sufficiently for the central bank to keep rates on hold for the rest of 2016, added St George Economics.
