RBA monetary policy: Assessing future bias

Reserve Bank of Australia (RBA) chose to keep the interest 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 the global economic conditions have continued to improve. Global trade and industrial production have picked up. Labor market tightened across many countries and global growth revised upward. Growth in China supported by infrastructure spending and property construction but increased borrowing in China with growth composition pose medium-term risks. Increased commodity prices boosting Australia’s national income, however, prices of iron ore and coal declined recently as expected.(Neutral bias)
• Headline inflation moved higher in most countries, partly reflecting the higher commodity prices. Core inflation low. Long-term bond yields are higher than last year but in historical context, they remain low. Interest rates have increased in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.  (Neutral bias)
• RBA expects growth to increase gradually over the next couple of years to little above 3 percent. The Australian economy is continuing its transition following the end of the mining investment boom. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures. (Mild dovish bias)
• Labor market indicators remain mixed. Employment growth has been stronger, though growth in total hours worked remains weak. Various forward-looking indicators still point to continued growth in employment over the period ahead and the unemployment rate would decline gradually over time. Wage growth remains slow and is likely to remain such. Slow growth in real wages is restraining growth in household consumption. (Neutral bias)
• Low-interest rates supporting economy and banks recently increased mortgage lending rates. Warns against stronger Aussie.(Neutral bias)
• RBA expects a gradual increase in inflation as the economy strengthens. (Neutral bias)
• Conditions in the housing market vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades. Growth in housing debt outpacing slow growth in household income. Expects supervisory measures to help to address the issue. (Neutral Bias)

There have been minor tweaks in this month’s statement; however, it basically remains neutral in terms of future bias. Additional sentences were used for explanations in greater details.

The Australian dollar remains unmoved by the neutral stance in monetary policies. The Aussie is currently trading at 0.7491, up 0.06 percent against the dollar.