The Reserve Bank of Australia’s March Board meeting minutes provided very little new guidance. The minutes revealed the themes discussed, which were very similar to the post-meeting press release – below trend domestic growth, financial market volatility and easing in housing market conditions. The central bank board discussed quite a bit about the labor market. The near-term trajectory of the jobless rate continues to be important to the monetary policy debate.
“Our view is that the unemployment rate is likely to stabilise around the 5¾-6% mark over this year, given reduced stimulus from housing and the lower AUD”, says ANZ.
The recent weakness in ANZ job adds supports the above view, but business profitability and capacity utilisation measures have increased and need a close monitoring. The risks continue to be skewed towards lower rates. The RBA will not be comfortable with the jobless rate at or close to 6% and inflation at the bottom of the target band.
“We continue to expect two 25bp cuts from the Bank this year, with May and August the most likely timing”, says ANZ.
In today’s minutes, there was slightly more insight into the strength of the central bank’s easing bias. The RBA repeated that persistent low inflation will give scope to further ease monetary policy, should that be appropriate to provide help to demand. However, there was not much discussion to imply a stronger bias.
Meanwhile, the minutes highlighted that GDP is running a tad below trend. However, the board meeting took place one day before the Q4 GDP report was released that indicated the economy grew moderately along with upward revisions to past data. Australia recorded quarterly growth outcome of 0.6% y/y in Q4, on par with the central bank’s projections, while the upward revisions to past data brought the economic growth in the year to December to 3%, as compared with the central bank’s February forecast of 2.5%.
The RBA again commented quite a bit on the labor market. The central bank continues to connect monetary policy to the rebound in labor market scenario. The members of the board also spoke about the trajectory of the participation rate. Even though the bank might feel confidence that employment will grow, it appears to be less confident regarding further inroads into the jobless rate. According to Deputy Governor Phil Lowe, a vital factor will be if the aggregate demand growth continues to be enough to accommodate the labor force growth.
Meanwhile, the minutes also noted that the non-mining sectors have been helped by the exchange rate’s depreciation in the past couple of years, which have reacted to the evolving economic outlook. The RBA is likely to prefer seeing AUD closer to the mid-60s level than the mid-70s. Also, the minutes observed weaker house price growth in the important markets of Melbourne and Sydney. It also noted that the housing credit growth is stabilising. The comments from the minutes are important as a less heated housing market is expected to be an important condition for additional easing of monetary policy.
