At its October monetary policy meeting, the Reserve Bank of Australia decided to keep the benchmark lending rate unchanged at the record low 1.50 percent after reducing the rate by 25 basis points in both August and May. The minutes of the October meeting released earlier today provide significant insight into the Board’s current deliberations.
The minutes showed that even though the unemployment rate has fallen by half a percentage point over the past year the underemployment rate has increased. In a speech earlier today Governor Lowe estimates that the current unemployment rate is around half a percent above ‘full employment’, pointing to ample spare capacity in the labour market.
Meanwhile, housing market conditions had been mixed recently, especially in Sydney and Melbourne, where house price growth continues to accelerate. Minutes clearly stated “developments would need to be monitored closely”, emphasizing uncertainty around the outlook for housing.
The RBA expects that there is “a reasonable prospect of sustaining growth in economic activity that would support further employment growth and, in time, a gradual increase in wage growth and inflation.”
"The quarterly CPI remains important and another downward shock on October 26th, when the latest CPI becomes available, would dent the RBA’s current inflation forecasts and lift expectation of further rate cuts, even possibly in November," said St George Economics in a report.
