The RBA minutes released today add a little colour to the hold decision, but not much more.
In considering the stance of monetary policy, members noted that the recent data on the international and domestic economies had been largely consistent with the outlook presented at the previous meeting. Growth in Australia’s major trading partners had remained a little below average in year-ended terms and commodity prices were still significantly lower than they had been a year earlier. Meanwhile, global financial markets had been volatile in the aftermath of the Bank of Japan’s decision to implement negative interest rates and generally there appeared to be more uncertainty about the direction and potency of monetary policy in the major jurisdictions. However, given the usual lags in the data, it was still too early to assess whether the bout of financial market volatility since the turn of the year foreshadowed or would lead to a weakening in global economic conditions. Globally, monetary policy remained very accommodative.
The available data suggested that the domestic economy had continued to grow at a slightly below-trend pace. There had also been further signs of a rebalancing of activity towards non-mining sectors of the economy, aided by the low level of interest rates and the depreciation of the exchange rate over the past couple of years, which had responded to the evolving economic outlook. There was a small decline in employment in January and a modest rise in the unemployment rate, following a run of much better-than-expected outcomes in the December quarter. Leading indicators of employment had increased further and were consistent with employment growth in the months ahead. Wage growth had remained at quite low levels.
Conditions in the established housing market had eased somewhat since September 2015, in part reflecting the effect of supervisory measures implemented in that year. In addition, after rising for some time, the growth in aggregate housing credit had stabilised over the past six months or so, with a significant easing in growth in lending to investors.
Members judged that there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged at an accommodative setting. Over the period ahead, new information should allow the Board to assess whether the improvement in labour market conditions was continuing and whether the recent financial turbulence presaged weaker global and domestic demand. Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand.
