The latest minutes from the December meeting reinforces the view that further rate cuts are not likely. They also mentioned the stronger property market, other than in WA.
In considering the stance of monetary policy, members discussed the policy decisions made throughout the easing phase since late 2011, during which the cash rate had been lowered in aggregate by 3¼ percentage points. The lower rates had helped support the economy in the transition following the mining investment boom and, more recently, had been in response to lower-than-expected inflation. Members discussed the effect of lower interest rates on asset prices and the decisions by households to borrow, particularly given the already high levels of household debt. Over recent years the Board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets. Members recognised that this balance would need to be kept under review.
Turning to the policy decision for the December meeting, members noted that the international environment had been more positive in recent months, while observing that significant risks to the outlook for global activity persisted. The Chinese economy had remained resilient, supported by expansionary fiscal policy and rapid growth in financing. International financial markets had interpreted the outcome of the US election, specifically the implications for infrastructure spending, as being positive for growth and inflation in the United States. At the same time, there were increased expectations that the Federal Reserve would increase policy rates at the next meeting of the FOMC. Rising commodity prices had also contributed to an assessment that the outlook for global inflation was more balanced than it had been for some time, although inflation remained below most central banks’ targets.
Domestically, data that had become available over the previous month indicated that GDP growth in the September quarter was likely to be lower than the forecast at the time of the November Statement on Monetary Policy. Year-ended growth was expected to decline before picking up to be above potential later in the forecast period, supported by low interest rates and the lower exchange rate since 2013. Members noted that these factors had assisted the economy in its transition following the mining investment boom and that an appreciating exchange rate could complicate the adjustment. Falls in mining investment were expected to subtract less from GDP growth over time and resource exports were expected to continue to make a substantial contribution to growth.
There was still considerable uncertainty about the momentum in the labour market. The unemployment rate had declined over the past year, as had measures of excess capacity that accounted for the number of additional desired hours of work. Part-time employment had grown strongly over the previous year, but employment growth overall had slowed. Members noted that there was expected to be excess capacity in the labour market for some time, which was consistent with further indications of subdued labour cost pressures. This suggested that inflation would remain low for some time before returning to more normal levels.
Housing market conditions had strengthened overall over preceding months, although there was considerable variation across the country and between houses and apartments. Housing credit growth had picked up a little, particularly for investors. The supervisory measures that had strengthened lending standards in the housing market had led some lenders to take a more cautious attitude to lending in certain segments. At the same time, the increase in global bond yields had led some lenders to increase their rates on fixed-interest rate loans.
Taking into account the information that had become available over the previous month, and having eased monetary policy earlier in the year, the Board judged that holding the stance of policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time.
