Daily Commentary BY THE CURVE TEAM –

March Minutes Confirms RBA’s Monetary Policy Stance

20th of March, 2019

Yesterday’s RBA minutes from their March meeting didn’t have too many surprises as they largely reiterated what we’ve recently been hearing from them.

Once again, the labour market is “particularly important”. With slowing GDP growth, muted inflation pressures and ongoing correction in the housing market, strong labour market conditions remain the bright spot for the economy as the RBA expect “a further decline in the unemployment rate to 4¾ per cent over the next couple of years.”

Despite these strong conditions, the RBA is wary of the “tension between the ongoing improvement in labour market data and the apparent slowing in the momentum of output growth” as well as “the transmission of tighter labour market conditions to inflation pressures…taking longer than might be expected” as they look to new information to help resolve these tensions.

Indeed, the recent pick-up in UK wages as unemployment rates continuously decrease despite below-average GDP growth will provide some comfort to the RBA as they hope a similar scenario unfolds in Australia. The question now is whether Australia’s labour market will in fact strengthen as we wait for Thursday’s employment data.

In addition to the continued faith in the labour market, the continued uncertainty around the consumption outlook following recent weak figures remains a concern for the RBA with the minutes stating:

“Growth in consumption was expected to be supported by an increase in growth in household disposable income. However, there continued to be considerable uncertainty around the outlook for consumption given the environment of declining housing prices in some cities, low growth in household income and high debt levels.”

The minutes concluded unsurprisingly with the chances of a rate being “more evenly balanced than they had been over the preceding year.”

On the data front, the dated house price index for Q4 showed that QoQ declines in house prices is now exceeding levels seen during the GFC, and given other recent housing data, this trend is likely to continue.

Neyavan Suthaharan

Client Services Officer