RBA Meeting Minutes - Global Economy Moves into the Spotlight

  • The minutes of the RBA board meeting in August were published today. They revealed an RBA more confident about the outlook for the domestic economy, leaving aside the near-term outlook, and more worried about the global economic outlook.
  • The RBA has shifted to give greater weight to global economic developments in setting cash-rate policy. In the conclusion of the minutes, the RBA noted “the Board judged it appropriate to assess developments in the global and domestic economies before considering further change in the setting of monetary policy”. This paragraph is in contrast to recent statements where the emphasis was on the labour market.
  • On jobs, the RBA noted “there appeared to have been more spare capacity in the labour market than previously appreciated”.
  • However, while the RBA concerns around the labour market have risen, the RBA seems more hopeful and confident on the real economy. The RBA stated “risks around the outlook were more balanced than they have been for some time”.
  • This more balanced expectation about the domestic economic outlook was underpinned by a boost to incomes from tax cuts and a signs of recovery in some housing markets.
  • The RBA continues to expect growth to recover to trend in 2020 of 2.75% and lift to 3% in 2021. We expect growth will fall short of these expectations, making it hard for the unemployment rate to move to the desired rate and challenging for inflation to move back into the RBA’s target band.
  • Therefore, we continue to expect two more rate cuts from the RBA – one in October and one early next year.
  • Monetary policy becomes a blunter instrument at these lower levels. So the possibility of the RBA having to pursue unconventional policies as they take the cash rate from 0.75% to 0.50% or after taking the cash rate to 0.50% is a growing risk.
  • The RBA minutes noted the board members reviewed the experience of other advanced economies with unconventional policy measures. The minutes noted one key lesson from the international experience was that the effectiveness of these measures depended upon the specific circumstances facing each economy and the nature of its financial system. Further, “a package of measures tended to be more effective than measures implemented in isolation”.



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