Bill Evans: RBA to pause cuts

Via Bill Evans at Westpac:

The minutes of the July monetary policy meeting of the Reserve Bank Board confirm that the Board is still open to further monetary easing, although as we had expected, prospects for a third consecutive easing in August have been dampened.

The best way to assess the likelihood of a move in August is to compare the wording in the June minutes with the wording in the July minutes. In the June minutes, the key “considerations” section noted “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. This very strong sentence was not repeated in the July minutes.

Furthermore the minutes do state that “the Board will continue to monitor developments in the labour market closely, and adjust monetary policy if needed”. In the June minutes, the “if needed” qualification was not used, merely saying instead “members agreed that in assessing whether further monetary easing was appropriate, developments in the labour market would be particularly important”.

Finally, my experience is that when a central bank decides to pause, it often refers back to previous policy decisions. In the final paragraph of the July minutes, the Board notes “this decision, together with the reduction in the cash rate decided at the previous meeting, would assist in reducing spare capacity in the economy”.

Other points which are worthy of noting are:

  • The Board confirms that it expects that GDP growth will return to trend over coming years. That comment provides a fairly clear indication that the GDP forecasts that will be provided in the August Statement on Monetary Policy will maintain the view that GDP growth in 2020 will reach 2 ¾ per cent. Westpac expects that following further evidence around the economy’s momentum through 2019, this growth forecast will need to be revised down in the November Statement on Monetary Policy, paving the way for a further rate cut at the November meeting. In that regard, it is interesting that  in previous communications, the dominant emphasis has been on reducing spare capacity in the labour market, the decision to cut rates was also impacted by the recent disappointing data on output growth, which is described as well below trend over the year to the March quarter. Despite the prospect of some lift in income growth from the legislated tax cuts, the outlook for consumption growth remains uncertain.
  • The description of the housing market continues to be cautious. Conditions in Sydney and Melbourne are noted to have stabilised, although rising auction clearance rates were on low volumes, and more generally, turnover in the housing market had remained low.
  • The Board explicitly dismisses any prospect of a further decline in interest rates “encouraging an unwelcome material pick-up in borrowing by households that would add to medium-term risks in the economy”. This is important, since lower rates are expected to support the economy through a more competitive currency and the freeing up of cash for borrowers, but any spill-over into excessive borrowing would always be seen as a constraint for policy.
  • The focus on the labour market remains clear with the unemployment rate, the underemployment rate, and wages growth being the key indicators of spare capacity. The Board notes that developments in these variables continue to indicate that spare capacity was likely to remain in the labour market for some time. That observation indicates that the Board expects that a further easing in monetary policy will be “needed”.
  • Finally, it is worth noting that the Board specifically addresses the recent uplift in the Australian dollar. It points out that it is important to assess the currency effect on the basis that without the rate cut, the exchange rate would have been higher as other central banks continue to ease policy.


On May 24th, Westpac complemented its February call for two rate cuts in the second half of 2019 with the likelihood of a third cut. However, we expected that there would be some months break between the second and third cuts. With the first two cuts now having been delivered, and some clear signals from these minutes that the Board is likely to pause before further adjustments, we remain comfortable with our call that the next move will be in November.

The minutes confirm that the Board is prepared to move and probably expects to move again but prefers to wait a while to assess the impact of the first two cuts. Our forecasts for growth, inflation and the unemployment rate clearly point to the need for further stimulus, and we expect that the November meeting will provide that timing. However we do recognise that while growth and inflation remain key policy objectives, the labour market has the most immediate priority. With updates to conditions in the labour market being provided on a monthly basis, prospects for the next move being as early as September or October cannot be dismissed.

David Llewellyn-Smith
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    • Yes
      In 5,000 years of financial history we’ve known about the inverse relationship between interest rates and assets.

      Phil and Bill still don’t get it.

      • Jumping jack flash

        The problem is Phil and Bill are bankers.
        They ignore the effects of the interest because for a bank, interest is awesome.
        Debt isn’t free and can never be free unless banks can earn their money not using interest.

    • Mining BoganMEMBER

      It’s been broken for a long time. Still doesn’t stop them doing more damage with each cut they make.

    • Wow. Just wow. Shameless advertorial passed off as journalism. So depraved it deserves to be pinned up in the pool room for future reference!

    • Yardney is a f#cking disgrace.

      Sydney average price to average income:
      4.7 times in 1973
      14.3 times in 2019

      Average Sydney rental yield on average Sydney rent
      4.9% in 1973
      2.8% in 2018

      Small wonder he didn’t roll out all the data, his idiotic argument immediately goes up in flames. As if those capital gains and double the amount of liar loan credit will be repeated in the future

      Shoot the lying prick.

      • Just emailed this to his metropole website:

        Your latest article is a disgrace. You trot out old prices to show the capital gain, but happily neglect to make the obvious connection to today and can’t therefore back up your thesis with anything approaching reality. Prices went nuts because of cheap speculative credit, tax changes that made negatively geared property investing profitable with reduced CGT and therefore beyond the value of the actual income stream, plus a wave of foreign buyers. Tell me that’s all going to repeat itself like a magic pudding.

        Sydney average price to average income:
        4.7 times in 1973
        14.3 times in 2019

        Average Sydney rental yield on average Sydney rent
        4.9% in 1973
        2.8% in 2018

        And you rave on about affordability? At 14x income? You are deceiving financially illiterate muppets into bankrupting themselves. We are a nation drowning in debt, with an economy on life support – and that’s before the global economy has its next major recession. Export prices are high only because Vale’s exports were cut off, and we’re selling almost all our gas offshore but don’t make any income from it. We’re surviving on 6 out 7 jobs being created by the government and mass immigration that’s suppressing wages. Are you blind, or being wilfully blind Michael?

        Small wonder you didn’t roll out today’s data to put things in perspective as I have done. Had you, your idiotic argument immediately goes up in flames. As if those capital gains and double the amount of liar loan credit will be repeated in the future. You are absolutely bloody shameless.

      • On the other hand a simple “past performance is not reflective of future performance” would have done it too. But again, we are talking about con artists.

    • BubbleyMEMBER

      It should come with the warning “This is a paid for advertorial by”

      And the difference between 1973 and 2018 is 45 years. Only 20 year olds have 45 years left in their working career and they are not going to be reading articles by some old white guy.

  1. Jumping jack flash

    Whew, the madness ended just in time.

    I hope he finally realised it was a futile exercise. The banks aren’t going to benefit from any more cuts.
    Cutting interest rates to inflate wages and prices, and create fulltime positions is borderline magical thinking in this environment.

    Even cutting to zero would not create enough debt capacity. You’d probably get mortgages down to 4%? Maybe a tad less?

    Its time to face reality, we aren’t going to see a return of the late 90’s, early 00’s. We just aren’t. The situation is very, very different now. Back in those ancient times, nobody had much debt so they could take on trillions of debt dollars.

    Flash forward to around 2010 – 2015 and we have amassed close to 10 trillion debt dollars, and we have, in the process the lowest mortgage interest rates we’re pretty much going to get. The number of cuts that are left available are not going to add another 10 trillion debt dollars on top of what we already have.

    It just can’t happen.

      • HadronCollisionMEMBER

        I emailed our WBC contact to see if they could match our 3.29 BOQ rate. “Can’t match this tier 3 bank rate.” What on earth is UBank then?

      • Jumping jack flash

        2.99 1 year fixed rate and then resets to SVR.

        Also UBank requires a higher standard of borrower than say westpac or ANZ.

        At the end of the day, interest rates reflect risk. They’ve been abused for so long that everyone seems to have forgotten.

        But that’s beside the point. The point is that can they cut rates to magic up another 5 to 10 trillion debt dollars over the next 5 to 10 years with 1% remaining? An extra trillion a year? Its very doubtful.

    • Jumping jack flash

      Ooh i found the reason for the latest cuts:

      “…faster progress in reducing the unemployment rate.

      Lower interest rates would provide more Australians with jobs and assist with achieving more assured progress towards the inflation target”

      So easy. Flick the switch and hey presto more jobs. If that’s not magical thinking i don’t know what is.

      Why dont they explain the mechanism which would provide that? Oh, it would be for businesses to take on debt to pay employees and fund additonal fulltime positions. That always works. Sure as eggs

  2. reusachtigeMEMBER

    This guy knows nothing! Only Lower teh interest rates, that will fix thing!!