AU: RBA Meeting Minutes

December 19, 2016 06:30 CST

The Reserve Bank of Australia has published the minutes of its December 6 meeting. Officials at that meeting kept the policy interest rate unchanged at a record low of 1.50 percent, concluding that rate cuts made earlier in the year meant that current policy settings were consistent with sustainable growth and achieving the inflation target "over time". This rate was last changed in August when it was cut by 25 basis points.

The discussion in the minutes closely follows that published in the statement released after the December 6 meeting. Members noted some improvement in the global economy despite growth still being a little below average, but also argued that it was too soon to assess the likely economic impact of the United States presidential election outcome. They also pointed to the sharp increase in global bond yields since the election and market expectations for United States officials to deliver higher policy rates and fiscal stimulus in coming months, but noted that market moves had been "generally orderly".

Turning to the domestic outlook, members noted that GDP data for the three months to September, to be published the day after their meeting, would likely show that growth was weaker than they had forecast in November, an assessment that proved correct. They also discussed recent signs of excess capacity in the labour market despite a relatively low unemployment rate, noting that wage growth remained low.

The meeting's discussion about policy focussed on the impact that previous policy easing has had on the domestic economy. Since 2011 the RBA has cut policy rates by a total of 325 basis points, initially to support the economy's transition after the end of the previous boom in mining investment and later as a response to unexpectedly low inflation. Members, however, argued that the need to support growth and achieve the inflation target must be balanced against the risk that keeping rates too low for too long would encourage excessive household debt. This balance, they argued "would need to be kept under review".

This discussion suggests that the RBA remains generally balanced about the near-term outlook for policy. Weak GDP growth in the three months to September, continued signs of labour market slack, and below-target inflation all suggest that another rate cut remains possible. On the other hand, officials' forecasts for both activity and inflation to strengthen and their concerns about household debt also suggest that further policy stability may be preferred in the near-term and that an eventual rate increase could be considered.

No policy meeting will take place in January, with the next meeting scheduled for early February. By that time, officials will have seen inflation data for the three months to December and December labour market data, and will also have had more time to assess the emerging impact of the Federal Reserve's decision to increase its policy rate this month.

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.