From Westpac:
As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.50%.
We were most interested in the concluding paragraph of the Governor’s statement. Note that in July this year the Governor changed June’s neutral bias to an easing bias adopting the terms “over the period ahead further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate”. That statement in July emphasised the importance of the upcoming inflation report for the August policy decision. There was always a risk that a similar approach could be taken this time although it was not our expected outcome.
In the event the closing paragraph was the same as in September: “Taking account the available information … 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”. That means that a very clear neutral bias has been retained.
As we have discussed, the decision to de-link the next inflation report from next month’s policy decision must be partly influenced by developments in the housing market. Recent data released by CoreLogic shows dwelling prices in Sydney up 3.5% in the last three months and by 5% in Melbourne. That development is hardly consistent with the comment in September that “the best available information suggests that dwelling prices overall have risen moderately over the past year”. That sentence has been replaced with: “The rate of increase in housing prices is lower than it was a year ago, although some markets have strengthened recently”. In addition, the Governor has chosen to note that “growth in rents is the slowest for some decades”. That observation appears to be linked with the substantial lift in supply of apartments which is ongoing and can be expected to accelerate.
Other comments on the overall economy are largely unchanged with the exception of an additional remark around household consumption which “appears to have slowed a little recently”. That would be a direct observation of the softer than expected growth in household consumption in the June quarter and ongoing weakness in the retail sales data. However, the Governor does note that household sentiment remains above average indicating that, at this stage, there is no significant concern about the consumer.
Other consistent observations are: “labour market indicators have been somewhat mixed”; “inflation remains quite low”; and “the economy is continuing to grow at a moderate rate”.
The AUD is currently around the same level as at the time of the September Board meeting and accordingly the commentary that “an appreciating exchange rate could complicate” the economy’s necessary adjustment.” Has been retained.
The global economy continues to be described as growing at “a lower than average pace” and the underlying pace of China’s growth in particular has been moderating.
Conclusion
We retain our view that rates will be on hold at the November Board meeting. Since the move in August the only real candidate for another move was going to be November when fresh information on inflation would be available and the Bank would have the opportunity to justify any move with its revised forecasts.We are not expecting to see any significant revisions to the growth forecasts and our forecast for underlying inflation in the September quarter also points to no significant change in the outlook for inflation. Consequently we see prospects for a rate cut at the November Board meeting being remote.
That all sounds about right. More cuts next year.
