RBA minutes show central bank is back in ‘wait-and-see’ mode

The Reserve Bank of Australia released its meeting minutes, which imply that the central bank is in a wait-and-see mode to measure the effect of the May and August rate cuts on the Australian economy, according to ANZ. The meeting minutes suggested that the central bank’s board normally considers that the Australia’s housing market conditions have softened, even though the RBA let go of the comment regarding the risks in the housing sector have waned.

The minutes showed that the board also discussed about the accuracy of lower housing turnover numbers and the forthcoming significant rise in apartment supply.

Meanwhile, business liaison implies certain companies had become quite cautious about hiring. There was a talk regarding the full-time/part-time split of jobs in various states, while “liaison contacts... reported that employers more generally had been taking a cautious approach to hiring”. The latter worries did not alter the overall conclusion that the jobless rate was expected to be quite stable in the near-term, added ANZ.

Meanwhile, the minutes showed that there were certain new developments about the outlook of investment and mining. The minutes noted a rebound in sentiment in parts of the mining industry. However, it further mentioned an additional huge decline in mining investment in 2016-2017. The Reserve Bank of Australia continued to be quite subdued regarding the non-mining investment outlook and that “uncertainty regarding future demand growth was weighing on non-mining business investment”, noted St George Economics in a research note.

With regard to the economic growth outlook, the minutes noted that domestic and international economies were widely in line with forecasts released in August.

Philip Lowe would be taking over as Governor. Lowe, on Thursday’s testimony, is expected to stress that the challenges from the unwinding of the mining investment boom and declining commodity prices are waning, whereas the non-mining economy is recovering too. He is also expected to project a gradual rebound in both inflation and unemployment, said ANZ in a research note.

“Notwithstanding the RBA’s inflation forecasts pointing to an easing bias, our central case remains that rates will stay on hold at 1.5 percent”, added ANZ.

This assumes that the third quarter CPI would show underlying inflation widely consistent with the central bank’s projection path, where a strong downward surprise might be needed to urge another rate cut.

“The trajectory of the AUD also remains important to the RBA’s deliberations, where we expect a slow depreciation, as well as labour and housing market data released in the interim”, according to ANZ.