RBA monetary policy: Assessing future bias

Reserve Bank of Australia (RBA) chose to keep the interest rate steady at 1.5 percent.

Let’s look at the details of policy announcement to assess the bias of RBA.

Key highlights –

• RBA notes that the pickup in global recovery continuing and labor markets tightened in many countries and growth forecast has been revised upwards. Growth in China supported by infrastructure spending and property construction but increased borrowing in China with growth composition pose medium-term risks. Increased commodity prices boosting Australia’s national income.(Neutral bias)
• Headline inflation that moved higher in most countries is down recently reflecting lower oil price. Core inflation low. Long-term bond yields are higher than last year but in historical context, they remain low. Interest rates have increased in the United States and likely to go up further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.  (Neutral bias)
• RBA says growth slowed in the first quarter as expected but expects growth to increase gradually over the next couple of years. The Australian economy is continuing its transition following the end of the mining investment boom. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. Consumption growth remained slowed amid slow growth in real wages and high levels of household debt. (Mild dovish bias)
• Labor market indicators remain mixed. Employment growth has been stronger, though growth in total hours worked remains weak. Various forward-looking indicators still point to continued growth in employment over the period ahead and the unemployment rate would decline gradually over time. (Neutral bias)
• Low-interest rates supporting economy and banks recently increased mortgage lending rates. Warns against stronger Aussie.(Neutral bias)
• RBA expects a gradual increase in inflation as the economy strengthens. (Neutral bias)
• Conditions in the housing market vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades. Growth in housing debt outpacing slow growth in household income. Expects supervisory measures to help to address the issue. (Neutral Bias)

There have been minor tweaks in this month’s statement; it basically remains same in tone and neutral in terms of future bias.

The Australian dollar declined as RBA maintains a neutral stance in monetary policies. The Aussie is currently trading at 0.7591, down 0.93 percent against the dollar for the day so far.