RBA monetary policy: Assessing future bias

Reserve Bank of Australia (RBA) maintained its monetary policy stance at today’s meeting and kept interest rates steady at 1.75%.

Let’s look at the details of policy announcement to assess the bias of RBA.

Key highlights –

• RBA notes that global economy is growing but now at much slower pace than earlier noted. Growth has been forecasted down recently. Acknowledged improvement in advanced economies and deteriorating conditions weakness in emerging market economies. RBA considered China to be growing moderately. Chinese recent fiscal actions supporting growth in near term.(Neutral bias)
• RBA acknowledged a recent rise in commodities prices but notes that it is much lower compared to years back, so terms of trade is weaker for Australia. (Neutral bias)
• Financial market volatile over re-pricing of assets following the UK referendum. Most markets functioning effectively. Effects of the referendum outside the UK may be hard to gauge. (Neutral Bias)
• Funding cost low for high-quality borrowers as monetary policy globally remains very accommodative.  (Neutral bias)
• Despite weakness in mining investment, the economy picked up along labour market and improvement continues. Labour market recently giving mixed signals. (Neutral bias)
• Exports expanding at above-trend pace. (Mild Hawkish)
• Inflation low and likely to remain so, labour cost subdued. (Mild Dovish).
• RBA seems to be less worried on the risks from rising house prices and considered supervisory measures effective. It said that some banks are taking additional caution. It, however, acknowledges a recent rise in prices but confident over upcoming supply. (Neutral Bias)
• RBA expressed worries that stronger Australian Dollar may derail rebalancing, which has been helped so far by low-interest rate, lower exchange rates, and financial institutions ability to lend credit to the business sector.(Mild dovish)
• RBA considers with current monetary policy stance prudent, given the conditions and make any adjustments as required. (Mild Hawkish)

Except for few changes regarding the UK referendum RBA has kept monetary policy statement similar to previous, only the use of some wordings make it a more hawkish tilted, for example, at the final line instead of using further easing it uses further adjustments.

Aussie however, hasn’t shown much of a volatility today and currently trading at 0.752 against the dollar.