The Reserve Bank of Australia announcement and statement was yesterday
This via Barclays is a good recap, I've bolded a few bits an pieces for emphasis. Barclays highlight the low wage growth impact on the economy, as has the RBA itself. Slow employment growth and slow wage growth is weighing on household spending.
- The Reserve Bank of Australia (RBA) kept its cash rate at 1.50% today, as was widely expected. In our view, the tone of today's statement was a touch more dovish than the statement in May, notably by flagging that low household income growth as a constraining factor on consumption.
- On the global economy, the RBA continued to state that the "broad-based pick-up" in the global economy has continued, but also noted the recent drop in commodity prices, particularly for iron ore and coal.
- On the domestic front, there were significant changes in the statement, with the RBA saying that the mining investment transition is "almost complete," and noting the improvement in business conditions recently in parts of the economy not affected by the mining sector.
- Although the central bank expects growth to slow in Q1 17, it continues to expect growth to rise gradually to a little above 3% over the next couple of years.
- The bank continued to point to recent stronger employment growth, but noted that average working hours had dropped. It also flagged that wage growth is likely to remain low for some time and that slow growth in real wages was "restraining growth in household consumption." In our view, this indicates that the central bank remains concerned over the low wage growth / low household consumption cycle and will be watching this trend carefully in coming 6-12 months.
- On the housing market, the RBA's guidance was broadly unchanged, but it noted that lenders in Australia have recently increased mortgage rates for investors and interest-only loans.
- On monetary policy, RBA appears comfortable with a neutral stance for now. The current weakness in household consumption and wages will continue to keep RBA watchful, despite the improvement in business conditions. We believe that, more than headline growth, if the trend of improvement in the labour market continues and wages start to rise at the margin, it may create conditions for RBA to normalize policy, but not before those trends are firmly established.
- We think the RBA is likely to wait for CPI inflation to hold consistently above 2% in the next 6-12 months before signalling a shift in its stance. We continue to expect the RBA to start raising interest rates in Q2 18. We forecast the hiking cycle will begin with a 25bp rate increase at the May 2018 MPC meeting, followed by two more hikes, of 25bp each, at the August and November 2018 meetings.
