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As expected by markets and economists alike, the Reserve Bank of Australia left interest rates at 1.5% at the conclusion of its September monetary policy meeting.
Providing no clear guide as to whether another rate cut is likely, the board refrained from adopting an explicit easing bias in the final paragraph of the statement, largely mirroring the language used in June after reducing the cash rate to 1.75% in May.
“Taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” it read.
Looking elsewhere in the statement, there were few meaningful changes from what was communicated in August, with most referring to recent data that merely confirmed what the board had previously stated.
In all likelihood, Glenn Stevens’ final monetary policy meeting as governor was probably a short one.
On the domestic economy, the board stated that “recent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports”.
In August, the board noted that “overall growth is continuing at a moderate pace”.
The absence of the word “moderate” will create a talking point, particularly given the proximity to Australia’s Q2 GDP report, due out tomorrow. It’s expected to reveal another solid increase in real GDP, leaving the year-on-year rate well above 3%.
There was also a tweak to the board’s view on the labour market, stating that “labour market indicators continue to be somewhat mixed, but suggest continued expansion in employment in the near term”. This differs to August when the board said indicators were “consistent with a modest pace of expansion in employment in the near term.”
A continued expansion in employment, as opposed to a modest pace of expansion.
Of the other major talking points, the board left its view towards the Australian dollar unchanged, acknowledging that “an appreciating exchange rate could complicate” the economic rebalancing currently underway.
It was a similar story on inflation, the other key consideration when it come to the outlook for policy, with the bank suggesting that “inflation remains quite low”.
“Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” it said, mirroring what was communicated in August.
Of all the changes made in the statement, most were found in the paragraph that discussed recent developments in the housing market, a favourite talking point for many Australians.
“The best available information suggests that dwelling prices overall have risen moderately over the past year and growth in lending for housing purposes has slowed,” it said, implying a degree of uncertainty as to how quickly they’re growing given the recent divergence in individual house price indices.
Like August, it said that supervisory measures had “strengthened lending standards in the housing market” with a number of lenders “taking a more cautious attitude to lending in certain segments”.
However, noticeably, it dropped the line from the August statement that suggested “risks in the housing market had diminished”.
Reflective of recent building approvals data, it also acknowledged that a “considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities”, mirroring the commentary from August.
On the global economy, the language was also largely unchanged, although the board noted that “actions by Chinese policymakers have been supporting growth, but the underlying pace of China’s growth appears to be moderating”. Previously it said that the actions undertaken by by policymakers had been “supporting the near-term growth outlook”.
The commentary on commodity prices and financial markets was left unchanged.
With no change in rates, no clear easing bias and few changes to the September policy statement, there is little information to be garnered from the release. Like markets, the RBA are awaiting further information before deciding whether a further adjustment in rates is necessary, a move that would almost certainly be to the downside.
Despite the lack of an explicit easing bias, it does not imply that the easing cycle is over. One only has to look at the June policy statement, and the rate cut delivered in August, for evidence.
Indeed, the commentary surrounding house prices, inflation, labour market conditions and wage growth all implies — on balance — that risks to the rate outlook are to the downside rather than upside.
With the economy chugging along nicely, it’s likely that upcoming labour market data — particularly on underemployment and underutilisation — along with Q3 CPI released on October 26, will determine whether or not another rate cut this year will be delivered.
The market reaction has been incredibly muted in the immediate aftermath of the release, suggesting there were few surprises to come from the policy statement.
For those who are interested, it can be accessed in full here.