18 Feb 2014
RBA minutes: Stability in interest rates likely most prudent course
FXStreet (Bali) - Minutes of the RBA monetary policy decision from February were published, with the Central Bank reaffirming its commitment to maintain rates stable for now.
Minutes of the Monetary Policy Meeting from February
On China: "In China, growth had remained a little above the government's target of 7.5 per cent. Growth in 2013 was supported by strong domestic demand, including from both consumption and investment. Members observed that net exports did not contribute to growth in 2013 and had not done so for several years."
On inflation: "Members noted that there were several possible explanations for the higher-than-expected inflation outturn. One was that it could reflect an element of noise that occurs in economic data. Alternatively, it could be that pass-through from the lower exchange rate was occurring more quickly than usual, or that pass-through of lower growth in wages was occurring more slowly than usual. It was also possible that there was less spare capacity, enabling retailers or wholesalers to increase their margins. With the available information it was not possible at this stage to distinguish between these explanations, and it was likely that some combination of them was at work."
"Part of the increase in underlying inflation was attributable to tradables prices, which had picked up in recent quarters following the depreciation of the exchange rate. Non-tradables inflation (abstracting from increases in administered prices) also increased in the quarter. Some of this was due to higher inflation in housing costs, with the cost of new dwellings rising as housing construction picked up. Members noted that the increase in non-tradables inflation was somewhat at odds with the soft growth in labour costs associated with the weak labour market."
On jobs: "Turning to the labour market, members noted that the unemployment rate had continued to edge higher in recent months, to 5.8 per cent in December, and that the participation rate had dipped further and had declined noticeably since mid 2013. Members were informed that the ageing of the population accounted for around half of the decline in the participation rate over the past few years. There had been little growth in employment over the past year or so and average hours worked had also declined over recent months, after a period earlier in 2013 when hours worked had been growing more rapidly than employment. Forward-looking indicators of labour demand, such as vacancies and job advertisements, had shown signs of stabilising in recent months, but remained at low levels and were consistent with only moderate growth of employment in the months ahead."
On indicators: "Data released since the previous Board meeting suggested that the domestic economy had continued to grow at a below-trend pace over the second half of 2013, although a range of indicators were more positive for economic activity around the turn of the year."
On the Aussie: "Members noted the 3 per cent depreciation of the Australian dollar on a trade-weighted basis over the past two months. The currency was 15 per cent below its most recent peak in early April 2013 and around the levels of mid 2010."
Considerations for Monetary Policy: "There were further signs that the expansionary setting of monetary policy was having the expected effects, with more timely indicators having been more positive for consumption, dwelling investment, business conditions and exports. Although inflation in the December quarter had been higher than expected, there were several possible explanations. The Board noted that it was likely the inflation reading contained some noise as well as some signal about inflationary pressures, but also presented something of a puzzle in interpreting the mix of activity and price data. Also, the further depreciation of the exchange rate since the December meeting was expected to add to inflation for a time, although the outlook for slightly slower wage growth was expected to help keep domestic cost pressures contained over the medium term."
"At recent meetings, the Board had judged that, given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged while assessing the continuing impact of that stimulus. There had been further signs in recent months that policy was having its intended effects. The exchange rate had also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy."
"In light of this, the Board's judgement was once again that it would be prudent to keep interest rates unchanged. The Board would continue to examine the data over the period ahead to assess whether monetary policy remained appropriate, with members noting that, if the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates."
Minutes of the Monetary Policy Meeting from February
On China: "In China, growth had remained a little above the government's target of 7.5 per cent. Growth in 2013 was supported by strong domestic demand, including from both consumption and investment. Members observed that net exports did not contribute to growth in 2013 and had not done so for several years."
On inflation: "Members noted that there were several possible explanations for the higher-than-expected inflation outturn. One was that it could reflect an element of noise that occurs in economic data. Alternatively, it could be that pass-through from the lower exchange rate was occurring more quickly than usual, or that pass-through of lower growth in wages was occurring more slowly than usual. It was also possible that there was less spare capacity, enabling retailers or wholesalers to increase their margins. With the available information it was not possible at this stage to distinguish between these explanations, and it was likely that some combination of them was at work."
"Part of the increase in underlying inflation was attributable to tradables prices, which had picked up in recent quarters following the depreciation of the exchange rate. Non-tradables inflation (abstracting from increases in administered prices) also increased in the quarter. Some of this was due to higher inflation in housing costs, with the cost of new dwellings rising as housing construction picked up. Members noted that the increase in non-tradables inflation was somewhat at odds with the soft growth in labour costs associated with the weak labour market."
On jobs: "Turning to the labour market, members noted that the unemployment rate had continued to edge higher in recent months, to 5.8 per cent in December, and that the participation rate had dipped further and had declined noticeably since mid 2013. Members were informed that the ageing of the population accounted for around half of the decline in the participation rate over the past few years. There had been little growth in employment over the past year or so and average hours worked had also declined over recent months, after a period earlier in 2013 when hours worked had been growing more rapidly than employment. Forward-looking indicators of labour demand, such as vacancies and job advertisements, had shown signs of stabilising in recent months, but remained at low levels and were consistent with only moderate growth of employment in the months ahead."
On indicators: "Data released since the previous Board meeting suggested that the domestic economy had continued to grow at a below-trend pace over the second half of 2013, although a range of indicators were more positive for economic activity around the turn of the year."
On the Aussie: "Members noted the 3 per cent depreciation of the Australian dollar on a trade-weighted basis over the past two months. The currency was 15 per cent below its most recent peak in early April 2013 and around the levels of mid 2010."
Considerations for Monetary Policy: "There were further signs that the expansionary setting of monetary policy was having the expected effects, with more timely indicators having been more positive for consumption, dwelling investment, business conditions and exports. Although inflation in the December quarter had been higher than expected, there were several possible explanations. The Board noted that it was likely the inflation reading contained some noise as well as some signal about inflationary pressures, but also presented something of a puzzle in interpreting the mix of activity and price data. Also, the further depreciation of the exchange rate since the December meeting was expected to add to inflation for a time, although the outlook for slightly slower wage growth was expected to help keep domestic cost pressures contained over the medium term."
"At recent meetings, the Board had judged that, given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged while assessing the continuing impact of that stimulus. There had been further signs in recent months that policy was having its intended effects. The exchange rate had also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy."
"In light of this, the Board's judgement was once again that it would be prudent to keep interest rates unchanged. The Board would continue to examine the data over the period ahead to assess whether monetary policy remained appropriate, with members noting that, if the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates."