AU: RBA Meeting Minutes

October 17, 2016 07:30 CDT

The Reserve Bank of Australia has published the minutes of its October 4 meeting. Officials at that meeting kept the policy interest rate unchanged at a record low of 1.50 percent after cutting this rate by 25 basis points at meetings held in May and August.

A more up-to-date presentation of the RBA's assessment of the outlook has been given in a speech delivered today by Governor Philip Lowe. In this speech, Governor Lowe noted that the two rate cuts already delivered this year had been in response to lower-than-expected inflation rather than concerns about the growth outlook. Although inflation is currently at 1.0 percent, well below the RBA's target range of 2.0 percent to 3.0 percent, he noted that the RBA has a flexible approach to meeting this target that allows temporary deviations but also expressed his view that it would pick up to around the lower end of the target range over the next two years.

Although the Governor made no explicit comments about the likely direction of policy rates in upcoming meetings, he did note that labour market conditions are relatively weak. He also highlighted recent declines in consumers' inflation expectations and noted that further falls would make it more difficult to achieve the inflation target. This suggests that the policy bias remains in favour of another rate cut sometime in coming months, particularly if inflation fails to pick up in line with the RBA's forecast. Inflation data for the three months to September are scheduled for release next week.

The discussion of the outlook and policy considerations contained in the minutes to the October meeting were broadly consistent with those presented in Governor Lowe's speech. Officials noted that GDP growth in the three months to September likely remained at a "moderate pace" but also pointed to ongoing regional differences in activity and employment conditions associated with a shift from mining to other sources of growth. Officials argued that growth in Australia's major trading partners had been slightly stronger than expected in recent months, with higher global commodity prices also driving an improvement in Australia's terms of trade.

There was relatively little discussion on the inflation outlook reported in the minutes, with officials noting that CPI data for the three months to September would be released later in the month, providing up-to-date information for the preparation of revised forecasts ahead of the November policy meeting. Officials also argued that conditions in the housing market had been "mixed" in recent months, suggesting this sector of the economy presented no compelling arguments for a change in policy at this meeting.

Reflecting these factors, the minutes confirmed officials' support for keeping policy rates on hold for now but provided little guidance about their intentions for upcoming policy meetings. Next week's CPI data and revised growth and inflation forecasts will likely be the main factors that determine whether the RBA sees a case to cut policy rates again at its November meeting.

The Reserve Bank of Australia (RBA) publishes minutes of its meetings with a two week lag. The text expands on the statement published two weeks earlier at the time of the announcement.

Although the RBA's Reserve Bank Board issues a detailed statement at the conclusion of its monthly meetings, investors also look to the minutes for a more detailed description of current economic outlook both domestically and abroad along with the latest RBB policy thinking.

It is only recently that the RBA has released meeting minutes. At the conclusion of their December 2007 meeting, the RBA announced several changes to its communications policy. Previously, a statement was released only if a policy change was made. Now a statement is released at the conclusion of every meeting. Another change concerned the timing of the policy announcement. Rather than waiting until the next day, the announcement occurs immediately after the conclusion of the meeting. In addition, minutes are now released two weeks after the meeting.