The minutes from the December RBA Board meeting were released today. Looks like rates will stay at current levels for some time yet.
In assessing the stance of monetary policy in Australia, members noted that the outlook for the global economy was little changed over the past month, with growth of Australia’s major trading partners forecast to be a little above average in 2014 and 2015. Commodity prices, particularly those for iron ore and oil, had declined over the year to date. Demand-side factors, such as the weakness in Chinese property markets, had played a role over recent months, though expansions in global supply appeared to have played a larger role earlier in the year. Global financial market conditions had remained very accommodative.
Domestically, the data that had become available over the month suggested that the forces underpinning the outlook for domestic activity were much as they had been for some time. GDP growth was still expected to be below trend over 2014/15 before gradually picking up to an above-trend pace towards the end of 2016. Mining investment was expected to decline sharply and resource exports were expected to grow strongly as the transition from the investment to the production phase of the mining boom continued. Very low interest rates had supported activity in the housing market, which in turn was expected to support consumption. However, members noted that subdued labour market conditions were likely to weigh on consumption growth and consumer confidence more generally. With spare capacity in labour and product markets likely to weigh on domestic inflationary pressures for some time, the inflation outlook remained consistent with the target of 2 to 3 per cent, notwithstanding some temporary upward pressure from the recent depreciation of the exchange rate.
Members noted that the current accommodative setting of monetary policy was expected to support demand and help growth strengthen at the same time as delivering inflation outcomes consistent with the target over the next two years. Despite the depreciation of the exchange rate, the Australian dollar remained above most estimates of its fundamental value, particularly given the significant declines in key commodity prices over recent months. Members agreed that further exchange rate depreciation was likely to be needed to achieve balanced growth in the economy. They noted that market expectations implied some chance of an easing of policy during 2015 and discussed the factors that might be producing such an expectation.
On the information available, the Board judged that the current stance of monetary policy continued to be appropriate for fostering sustainable growth in demand and inflation outcomes consistent with the target. Members considered that the most prudent course was likely to be a period of stability in interest rates.
