Highlights of the minutes, with thanks to Westpac.
This, in particular;
The most important aspect of October Board meeting minutes was the decision by the Board to retain the following term: “Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them”. This statement had been used in the August and September minutes but there was genuine market speculation that it would be dropped from the October minutes.
It has been our view that the statement would be retained particularly as a signal to currency markets that Australian interest rates can still come down and the absence of any convincing evidence that current below trend growth is set to accellerate.
The statements by the Governor in August, September and October, showed no hint that the Bank had an easing bias. Note that in the Governor’s statements he routinely noted: “The Board will continue to assess the outlook and adjust policy as needed”.
Of course the other significance of retaining this sentence is that a rate cut is extremely unlikely at the November Board meeting.
Also of note:
- the Bank has found the appreciation of the currency since the September Board meeting unhelpful
- In today’s minutes the sustainability of the appreciation in the exchange rate is questioned as is the sustainability of the pick up in consumer and business confidence over recent weeks.
- Note that the minutes point out although business confidence has increased noticeably, business conditions remained below average.
- The Bank has recognised the key dynamics around household consumption by linking the sub-trend performance with household income and the soft conditions in the labour market. The labour market is described as having softened in recent months with forward looking indicators of labour demand remaining soft and the Banks’ liaison suggesting employment intentions were subdued particularly in mining and mining-related sectors.
- There is no implication in the minutes that the Bank fears a housing bubble.
- The Board is also expectant for dwelling investmen
- the commentary around the consumer; business investment; and the labour market remains downbeat in these minutes while recent data around dwelling approvals and housing finance hardly point towards a runaway housing boom.
- On October 3 we revised back our timing for the next rate cut from November to February
- It is our view that this interaction will make it clear that two further rate cuts are still required.
