RBA monetary policy: Assessing the bias

Reserve Bank of Australia (RBA), decided to keep policy unchanged and keep interest rate at 2%. RBA's decision has failed to give support to Aussie, which is down -0.5% for the day due to relative dovish communications. Reserve bank of Australia (RBA) after few sharp reduction in rates has kept policy unchanged from mid of the year as outlook improved and weak Aussie contributed to deterioration to inflation outlook.

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 expected (Dovish bias)
• Commodity prices are much lower and Australia's terms of trade declining (Mild dovish).
• Financial market volatility have increased reducing risk appetite. Financial conditions have tightened, especially for low quality borrowers in emerging market but accommodative for high quality borrowers (Mild dovish).
• Moderate expansion in Australian economy and improvement in non-mining sector leading to stronger employment growth. Business conditions improved and lending has picked up (Hawkish).
• Inflation low and likely to remain so, labour cost subdued (Mild dovish).
• RBA seems to be less worried over the risks from rising house prices and assures of keeping policy accommodative (Neutral).
• Not much over Australian Dollar just one liner suggesting it is adjusting to lower commodity prices (Neutral).
• RBA's board judged that there are prospects to continued growth in the economy with inflation close to target (Neutral).
• Outlook of inflation, may afford further easing if situation demands so. (Mild dovish)

With most bias pointing to a neutral to  mild dovish tone, RBA is expected to leave rates unchanged going ahead at least till first quarter next year, unless rapid deterioration of economic outlook.

However, compared to previous statement, today's can be called as a shift to dovish territory.

Australian Dollar is currently trading at 0.707 against Dollar.