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Bill Evans, analyst at Westpac, explains that the Minutes of the March Reserve Bank Board meeting of Australia has emphasised the Board’s uncertainty around the slowdown in output data while labour market data remains robust.

Key Quotes

“In the final paragraph of the section on the policy outlook, the Board noted “they assessed that it would be appropriate to hold the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data”.”

“In the minutes, the Board speculated that “GDP growth over 2018 had been a little lower than anticipated at the time of the February Statement on Monetary Policy”. In fact, annual GDP growth in 2018 printed 2.3% compared to the RBA’s estimate in February of 2.75% – hardly consistent with the description “a little lower”. The minutes also noted that the accounts were likely to confirm a “markedly slower pace of growth in the second half of 2018 than in the first half”. In fact, the accounts printed a 4% annualised pace in the first half, down to a 1% annualised pace in the second half.”

“The tension that the minutes refer to is around conditions in the labour market, which “had continued to improve”, while “leading indicators continued to suggest that employment growth was likely to remain above average, although some indicators have turned down a little recently”.”

The Board has raised the importance of data releases over the next few months and has left open the possibility to cut rates should those releases disappoint. Certainly, the December quarter national accounts would have fitted into that category, although the emphasis remains on the labour market data.”

“Westpac’s timetable for policy action remains a 25bps cut in August to be followed by a second 25bps cut in November. These dates will give the RBA appropriate scope to explain their decisions in the context of weaker growth, employment and inflation forecasts in an orderly fashion, rather than be seen to overreact to any particular data report.”