RBA December meeting minutes demonstrate series of concerns, but highlights positives in current conditions

The Reserve Bank of Australia’s December board meeting minutes showed their series of worries and also underlined the positives in current conditions. The board was quite worried regarding the possible harm to global economic growth if the U.S. were to pass policies that limit trade, noted St. George Economics in a research note. According to the board, this issue is one of uncertainty and one that would unfold over the next year.

“Trade is not a zero sum game and misguided policy has the potential to harm living standards in the U.S. as well as in its trading partners”, noted St George Economics.

The board stated that China was boosting its economy but that its high and increasing levels of debt were a risk to its longer term outlook. This is not a new problem; however, something that needs to keep a close watch on given the risks on the downside of excessive debt.

The RBA’s views regarding the domestic economy were realistic and more downbeat that earlier. The Australian labor market seems weak, while retail spending is not strong. Also, lack of business investment continues to be a drag on the economic growth. However, the negative effect of subdued business investment is likely to ease in 2016-2017 as compared to 2015-16.

In spite of these areas of weakness, the board continues to believe that inflation will come back to the central bank’s target band in time. The Reserve Bank of Australia continues to be quite optimistic about economic activity and inflation. If activity and inflation continue to stay below their forecasts ‘over time’ then there is a solid possibility that the RBA is not done lowering rates in this cycle, according to St George Economics.