No direction change from RBA: ANZ's Felicity Emmett
GUEST OBSERVER
The minutes from the RBA’s October meeting suggested little change for the near term path for monetary policy. While there are clearly concerns over growth prospects in China and East Asia, on the domestic front the tone was quintessentially ‘glass half full’.
On the domestic front, the minutes suggested:
Soft GDP growth in Q2 reflected temporary weather-related disruptions and overall growth was expected to have strengthened in Q3. There was further evidence of a rebalancing of growth supported by the lower AUD (through net services trade) and lower rates (through housing construction and consumer spending).
The Board remains uncertain about the housing outlook. The minutes noted that it was too early to be confident that signs of slowing house prices would be sustained. They also highlighted the unreliability of the housing finance numbers, noting that “the data on the split of lending to owner-occupiers and investors were of questionable quality at present”. On the financial stability front, the Board noted that increased competition in the owner-occupied and business lending sectors suggested that “a key challenge would be to ensure that lending standards at both Australian and foreign-owned banks did not weaken from this point”.
The Board seems somewhat more comfortable about the risks posed by strongly growing house prices, noting that ”the response of the banks to supervisory measures implemented by APRA were helping to manage risks in the housing market”.
On the global front the tone was more cautious:
Concerns remain raised about the outlook for growth in China and East Asia. In particular, the minutes highlighted the slowdown in industrial production and exports in the region and noted that ongoing below-average growth remains “a source of concern for the strength of the global economy”.
The October board meeting pre-dated last week’s move by Westpac to increase mortgage rates by 20bps, although the announcement would not have come as too much of a surprise to the RBA. Governor Stevens noted in July that higher mortgage rates were to be expected given the increased capital requirements for major banks. We continue to expect the RBA to wait until next year to cut rates, when the stimulus from housing and the lower AUD are likely to fade. However, if other major banks follow Westpac’s lead in coming weeks, a late 2016 rate cut cannot be ruled out.
Felicity Emmett co-head of Australian economics, ANZ Research and can be contacted here.
