RBA likely to stay on hold for sometime on domestic, global uncertainty

The Reserve Bank of Australia’s November Board meeting minutes were widely in line with the narrative from the Monetary Policy statement. The overall tone seems very optimistic, with economic growth projection to be around potential in the quarters ahead, noted ANZ in a research report.

However, the outlook is not without risks and the minutes underlined certain worries. It noted medium-term risks to the China’s economic growth outlook given the high and increasing debt levels and therefore the minutes have stated uncertainty regarding the terms of trade outlook.

The minutes have also mentioned concerns regarding excess capacity in the labor market and the effect on wages, and uncertainty regarding “households’ expectations of their income growth” and how that affects spending and saving decisions. The central bank also seems worried about the housing market, where “members noted that assessing conditions in the housing market had become more complicated” and that “while overall conditions had eased relative to 2015, some indicators have strengthened over the previous few months”.

Significantly, the November meeting minutes imply that the Reserve Bank of Australia might be more comfortable with the inflation outlook and possibly increasingly confident that pressures of disinflation have peaked. The minutes reiterated that the risks to global inflation are quite balanced but also judged risks to domestic inflation as “broadly balanced”, underpinned by “evident that wage growth in Australia had stabilized”, said ANZ.

Wage growth stabilization is significant for the inflation outlook, especially given the already subdued rental growth and the huge volume of apartment supply coming on stream.

“We continue to see the RBA on hold with the cash rate steady at 1.5 percent. While the RBA’s forecasts for persistently low inflation implies an easing bias, this is tempered by a more balanced assessment of the inflation risks and ongoing financial stability concerns”, added ANZ.

At 06.00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index stood slightly bearish at -69.3172. The FxWirePro's Hourly USD Strength Index stood highly bullish at 129.391.

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