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18 Mar 2014
RBA minutes: Period of stability for rates if economy evolve as expected
FXStreet (Bali) - Minutes of the Monetary Policy Meeting of the Reserve Bank Board for the month of March reaffirmed that 'it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected.'
The RBA also notes the AUD remains high by historical standards, while some members also discussed the use of macro tools, which may potentially reduce the need to hike rates in the future (slight negative input for the Aussie).
Considerations for Monetary Policy
The pace of growth of Australia's major trading partners appeared to have remained around average. Domestically, timely indicators were consistent with some improvement in economic conditions over recent months, and there were further signs that the expansionary setting of monetary policy was having the desired effects. Indicators had been generally positive for consumption, housing investment, business conditions and exports. Mining investment had declined and was expected to fall further, while non-mining investment remained subdued and was expected to pick up gradually over time. Wage growth was at quite low rates, and if domestic costs remained contained some moderation in inflation for non-traded goods and services could be expected over time. These conditions would be expected to keep inflation consistent with the target even with lower levels of the exchange rate. While the labour market remained weak, forward-looking indicators of labour demand appeared to have stabilised.
At recent meetings, the Board had judged that it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected. Developments since the previous meeting had supported that assessment. There were further signs that low interest rates were providing support to activity, with improved economic conditions evident across a range of household and business indicators. While the labour market was expected to remain subdued for a while and wage growth had declined, the Board observed that this was consistent with conditions in the labour market usually lagging changes in economic activity. The decline in the exchange rate seen to date would assist in achieving balanced growth in the economy, though members noted that the exchange rate remained high by historical standards.
In light of this assessment, the Board's judgement was that it would be appropriate to maintain the current stance of policy. The Board would continue to examine the data over the period ahead, with members noting that, if the economy was to evolve broadly as expected, then the most prudent course was likely to be a period of stability in interest rates.
The RBA also notes the AUD remains high by historical standards, while some members also discussed the use of macro tools, which may potentially reduce the need to hike rates in the future (slight negative input for the Aussie).
Considerations for Monetary Policy
The pace of growth of Australia's major trading partners appeared to have remained around average. Domestically, timely indicators were consistent with some improvement in economic conditions over recent months, and there were further signs that the expansionary setting of monetary policy was having the desired effects. Indicators had been generally positive for consumption, housing investment, business conditions and exports. Mining investment had declined and was expected to fall further, while non-mining investment remained subdued and was expected to pick up gradually over time. Wage growth was at quite low rates, and if domestic costs remained contained some moderation in inflation for non-traded goods and services could be expected over time. These conditions would be expected to keep inflation consistent with the target even with lower levels of the exchange rate. While the labour market remained weak, forward-looking indicators of labour demand appeared to have stabilised.
At recent meetings, the Board had judged that it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected. Developments since the previous meeting had supported that assessment. There were further signs that low interest rates were providing support to activity, with improved economic conditions evident across a range of household and business indicators. While the labour market was expected to remain subdued for a while and wage growth had declined, the Board observed that this was consistent with conditions in the labour market usually lagging changes in economic activity. The decline in the exchange rate seen to date would assist in achieving balanced growth in the economy, though members noted that the exchange rate remained high by historical standards.
In light of this assessment, the Board's judgement was that it would be appropriate to maintain the current stance of policy. The Board would continue to examine the data over the period ahead, with members noting that, if the economy was to evolve broadly as expected, then the most prudent course was likely to be a period of stability in interest rates.