The latest RBA minutes, published today do not provide much extra insight, other than saying the longer-term impact of Brexit is yet unknown, and local economic signals remain mixed. Looks like August will provide the data point to determine possible next steps.
GDP growth in Australia’s major trading partners looked to have remained slightly below average over recent months, in line with earlier forecasts. GDP growth in China appeared to have eased further, which was continuing to affect economic conditions throughout the Asian region. Monetary policy remained very accommodative across the major economies and was expected to remain so given that inflation was below most central banks’ targets, despite improvements in labour markets leading to full employment in several large advanced economies.
The United Kingdom’s vote to leave the European Union had led to considerable financial market volatility, which had since settled. Financial markets had functioned effectively throughout the episode and borrowing costs for high-quality borrowers remained low. Any effects of the referendum outcome on UK and global economic activity remained to be seen. In any event, the referendum result implied a period of uncertainty about the outlook for the United Kingdom and the European Union. In the absence of significant financial dislocation, the staff’s central case was that this uncertainty was expected to have only a modest adverse effect on global economic activity.
Commodity prices had generally increased since the previous meeting. At the time of the present meeting, the Australian dollar (in trade-weighted terms) was around the levels assumed in the forecasts at the time of the May Statement on Monetary Policy.
In the domestic economy, the transition of economic activity to the non-resources sector was now well advanced and recent data suggested that growth had continued at a moderate pace in the June quarter. Low interest rates were continuing to support household spending and the lower exchange rate since 2013 had continued to assist the traded sector of the economy. Members noted that an appreciating exchange rate could complicate the necessary economic adjustments.
Recent data showed that conditions in the labour market had been more mixed of late. The unemployment rate had remained around 5¾ per cent for most of 2016, having fallen noticeably over 2015. Inflation was still expected to remain quite low for some time given very subdued growth in labour costs and very low cost pressures elsewhere in the world.
Indicators of conditions in housing markets had been somewhat mixed over recent months. Housing prices were recorded as having risen in Sydney and Melbourne in April and May, but were little changed in June. Building approvals remained elevated at levels that would add to the considerable amount of dwelling construction work already in the pipeline. Considerable supply of apartments was scheduled to come on stream over the next few years, particularly in the eastern capital cities. At the same time, however, housing credit growth had eased, in line with a lower turnover of housing and the earlier tightening in banks’ lending standards following the announcement of supervisory measures. Various state government measures and changes to bank lending requirements were likely to temper foreign investor demand for housing.
Taking account of the available information, the Board judged that holding monetary policy steady would be the most prudent course of action at this meeting. The Board noted that further information on inflationary pressures, the labour market and housing market activity would be available over the following month and that the staff would provide an update of their forecasts ahead of the August Statement on Monetary Policy. This information would allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.
