AU: RBA Meeting Minutes

Mon Jul 17 20:30:00 CDT 2017

The Reserve Bank of Australia has published the minutes of its July 4 meeting. Officials at that meeting kept the policy interest rate unchanged at a record low of 1.50 percent, again concluding that current policy settings were consistent with sustainable growth and achieving the inflation target "over time". This rate was last changed in August 2016 when it was cut by 25 basis points.

The minutes show that officials remained generally positive about the global outlook, noting that the pace of growth in the Chinese economy had been maintained and that a slowdown in the United States early in the year appeared to have been temporary. Officials also argued that weaker growth in the Australian economy in the there months to March largely reflected temporary factors, with more recent and forward-looking indicators generally positive. Conditions in the labour market, in particular, were seen to have strengthened, with officials noting that this had removed some of the downside risks to the RBA's forecasts for wage growth.

The minutes also described a discussion among officials about the level of the neutral interest rate for Australia, that is the rate at which output growth is at potential and inflation stable. Although this rate cannot be measured directly, officials cited analysis that estimates the neutral nominal cash rate could be around 3.5 percent compared with its current level of 1.5 percent. They noted that this implies that policy settings have been "clearly expansionary" in recent years, suggesting that the policy rate would need to increase if and when officials decide that a more neutral policy stance is warranted. Officials also noted in the minutes that financial markets expect no change to the policy rate over the rest of 2017 but are pricing in some chance of an increase by mid-2018.

With quarterly consumer price index data scheduled for release later this month, the minutes showed very little discussion of the inflation outlook other than to note that officials still expect growth in prices to pick up over time. Based on this outlook, officials again concluded that current policy settings were appropriate. Officials, however, repeated their assessment that an appreciation of the domestic exchange rate would "complicate" economic adjustment. Since this meeting the Australian dollar has appreciated significantly, with further gains made immediately following the release of the minutes, perhaps reflecting the discussion about the neutral level of policy rates. This move in the exchange rate and the upcoming inflation data will likely play a major role in the RBA's policy deliberation at its next meeting, scheduled for early next 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.