RBA minutes still very dovish

Capital Economic on the minutes:

The minutes of the latest RBA meeting emphasised that the economic recovery has further to run before the RBA will be satisfied which supports our view that the Bank will announce another extension to its QE programme in June. The minutes acknowledged that the economic data over the past month had been stronger than the Bank had previously expected. In particular, GDP growth in Q4 had been above the RBA’s forecast. And the minutes highlighted concerns about surging house prices and noted that the committee would be watching lending standards “carefully”. We expect a loosening in lending standards to force APRA to reimpose some lending restrictions in the years ahead.

But the Bank is clearly not yet satisfied with the economic outlook. The minutes argued that in contrast to many other advanced economies, the adjustment in the labour market had largely happened through lower wage growth rather than via a slump in employment. The Board reiterated that wage and price growth are still too low and the unemployment rate remains too high. What’s more, the Bank is expecting the improvement in the labour market to pause in the months ahead as the end of JobKeeper results in some job losses. While the further decline in the unemployment rate to 5.6% in March is a positive development it remains well above the Bank’s estimate of the natural rate of unemployment at around 4%. On that basis, we think the Bank will be keen to keep stimulus in the months ahead. We expect the Bank to announce another $100bn extension to its asset purchase programme in June and keep rates on hold until late 2023.

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