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 1.5 percent.

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. Acknowledged improvement in advanced economies and deteriorating conditions weakness in emerging market economies. Chinese recent fiscal actions supporting growth in near term but underlying growth moderating.(Neutral bias)
• RBA acknowledged the 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 markets functioning effectively. (Neutral Bias)
• Funding cost low for high-quality borrowers as monetary policy globally remains very accommodative.  (Neutral bias)
• Despite weakness in business investment, the economy picked up along labour market and improvement continues. The Labor market is giving mixed signals but employment expansion likely. (Neutral bias)
• Inflation is low and likely to remain so, as labour cost subdued. (Mild Dovish).
• RBA seems to be less worried of the risks from rising house prices and considered supervisory measures effective. It said that some banks are taking additional caution. It however, acknowledges the 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 especially after easing in May and August. (Mild Hawkish)

Except for few changes, RBA has kept monetary policy statement similar to the previous.

Aussie is trading at 0.762, up 0.5 percent for the day as the RBA policy indicates a pause in the near term.