RBA: Rates on hold with minor changes to decision statement - Westpac

Bill Evans, Research Analyst at Westpac, explains that the Australia’s Reserve Bank Board decided to leave the cash rate unchanged at 1.5% and the decision statement showed little substantive change.

Key Quotes

“The closing paragraph of the Governor’s statement accompanying the decision was also unchanged from May, retaining the key line that “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

“The core narrative of the Governor’s statement is essentially unchanged – a strengthening global economy with financial conditions expansionary (notwithstanding recent events and some increase in short term interest rates); an Australian economy tracking towards growth a little above 3%; consumers a continuing source of uncertainty but indicators pointing to a gradual reduction in unemployment and the outlook pointing to a gradual pick-up in inflation.”

“There is perhaps a touch less conviction around the labour market. The unemployment rate is now “little changed at around 5½ per cent for much of the past year” rather than having “declined over the last year but … been steady … for some months”. A comment contrasting the improving labour market with low wages growth is cut back to simply observe “wages growth remains low”. While we warn against ‘over-reading’ these sorts of language changes we note that the RBA’s official forecasts currently have only a modest decline in the unemployment rate – down 0.25% to 5.25% by mid-2020 – and that the ‘full employment’ level below which conditions would be expected to see wage inflation pick up is thought to be somewhat lower.”

“Conclusion

Overall, the June decision statement showed little substantive change, retaining the broad picture of policy firmly on hold as a gradual move back to trend growth and inflation on target comes through. The most notable shift is a new comment implying the Bank is not particularly worried that a further tightening in mortgage lending conditions will be disruptive. We confirm our long held view that the official cash rate will remain unchanged throughout 2018 and 2019.”