Bill Evans, Research Analyst at Westpac, notes that the Minutes of the Monetary Policy Meeting of the Reserve Bank Board contain no real surprises and the forecasts for the Australian economy which were set out in the recent August Statement on Monetary Policy are described as largely unchanged.
Key Quotes
“Of most interest in the commentary around the economy relates to a more confident assessment of the risks around the consumer.”
“The themes we have seen in previous minutes around a continuing global economic expansion tempered by some policy induced slowdown in the Chinese economy remain. As before, the issue around international trade is highlighted as a source of uncertainty for the global outlook.”
“Of most interest in the commentary around the economy relates to a more confident assessment of the risks around the consumer.”
“In these minutes, the Board points out that “the more recent increase in minimum wages, the announcement of future tax cuts, and expectations of a further tightening in labour market conditions had reduced some of the uncertainty around the outlook for consumption.”
“The minutes confirm the forecasts in the August SoMP which anticipate both headline and underlying inflation failing below 2 per cent to 1 ¾ per cent in 2018.”
“Finally, as expected, the minutes emphasise that reducing the unemployment rate and returning inflation towards to the mid-point of the target remain the necessary conditions to support higher rates. It is reiterated that the next move in the cash rate would more likely be an increase rather than a decrease.”
“Conclusion
Today Westpac released an update to its forecasts, extending them out to the end of 2020. We anticipate the cash rate remaining on hold through 2018, 2019 and 2020. Factors which we consider important in this profile are: a steady weakening in the housing market through 2018 and 2019, low inflation, benign wages growth, and clear signs of a slowdown in the world economy.
The Minutes mention most of these factors but appear to be overly hopeful that economic activity and income growth will be sufficient to justify a rate hike at some point.”
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