The RBA minutes for the September “no change” decision do not add much to the sum of human knowledge other than they do believe momentum in investment housing may be slowing following the regulatory interventions.
Members noted that the key news internationally over the past month had been developments in the Asian region. The weakening in Chinese economic activity combined with developments in Chinese financial markets had led to sharp declines in global equity prices. So far, this volatility had not impaired the functioning of other financial markets and funding remained readily available to creditworthy borrowers. Moreover, several recent policy measures designed to support activity in China had not yet had their full effect. Economic conditions in the United States and euro area had continued to improve, monetary policies globally remained very stimulatory and lower oil prices would support economic activity in most of Australia’s trading partners. Overall, international economic developments had increased the downside risks to the outlook, but it was too early to assess the extent to which this would materially alter the forecast for GDP growth in Australia’s trading partners to be around average over the next couple of years.
Domestically, the national accounts were expected to show that output growth had been weak in the June quarter, following a strong outcome in the March quarter partly as a result of temporarily lower resource exports. Over the past year, resource exports had grown strongly and further growth was in prospect as the production of liquefied natural gas ramped up. The depreciation of the Australian dollar in response to the significant declines in key commodity prices was also expected to support growth, particularly through a larger contribution from net service exports.
Recent data on investment intentions suggested that mining investment would continue to decline and non-mining business investment would remain subdued in the near term, despite survey measures of aggregate business conditions being above average. However, non-mining business investment was still expected to pick-up over time as a result of the depreciation of the exchange rate over the past year and a further gradual rise in household expenditure.
Members noted that very low interest rates would continue to support growth in dwelling investment and household consumption. There were indications that the measures implemented by APRA had slowed the growth in lending for investment housing. Dwelling prices continued to rise strongly in Sydney, though trends had been more varied across other cities. The Bank was continuing to work with other regulators to assess and contain risks that may arise from the housing market. Prices in most other asset markets had been supported by lower long-term interest rates, while equity prices had moved lower and been more volatile recently, in parallel with developments in global markets.
Although the demand for labour had improved, particularly in service sectors, members noted that spare capacity remained and wage pressures continued to be weak. As a result, domestic cost pressures were likely to remain well contained and offset the expected rise in the prices of tradable items over the next couple of years. Inflation was forecast to remain consistent with the target over the next one to two years.
Given these considerations, the Board judged that it was appropriate to leave the cash rate unchanged. Information about economic and financial conditions would continue to inform the Board’s assessment of the outlook and whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target.
