RBA monetary policy: Assessing future bias

A new governor, Philip Lowe is heading the Reserve Bank of Australia (RBA) now and at his first monetary policy meeting, he and his colleagues have chosen to maintain rate 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 labor market improvement in advanced economies but deteriorating conditions industrial production and trade. 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 mining investment, it is being offset by other areas of the economy such as trade, residential construction, and public demand. Household and businesses sentiment above average.(Hawkish bias)
• Labour market and improvement continue. The labor market is giving mixed signals but employment expansion likely. There are considerable variations in employment across the country.(Neutral bias)
• Inflation is low and likely to remain so, as labor cost subdued. (Neutral bias)
• 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)
• Low-interest rates supporting economy and banks are in a position to lend for worthwhile purposes. Warns against stronger Aussie.(Mild hawkish)
• RBA considers the 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 previous. It dropped the detailed criticism of a stronger Aussie. The monetary policy can be seen as slightly hawkish tilted.

Aussie is trading at 0.767, down 0.2 percent despite the fact that the RBA policy indicates a pause in the near term.