Upcoming meetings of the Bank of Japan and the FOMC are sucking the oxygen away from other topics in financial markets so the release of the RBA September meeting minutes have been somewhat pushed aside. Even so, the board’s views on unemployment, inflation and house prices were deemed to be main points of interest but other than those, the minutes were not expected to provide any surprises.
House prices, especially those in Sydney and Melbourne, have been a topic of discussion since the second rate cut of the year occurred in August. There have been reports of large prices increases and high auction rates and observers were keen to see how the RBA viewed these developments. The minutes indicate the RBA is ambivalent about prices, noting a decline in auctions and a rising trend in the average number of days a property was on the market. It also expects a “considerable volume of apartments scheduled to be completed over the next couple of years, particularly in the eastern states” to add to supply.
Here’s what the economists said:
Bill Evans, Westpac:
“We have been somewhat surprised at the more downbeat tone used around the housing market. Nevertheless this sentiment is not consistent with any imminent decision to adjust rates….While no one gives any chance to a policy move on October 4 there is still plenty of anticipation that the Bank will cut rates at its following Board meeting on November 1. We do not think that there is any evidence in the themes set out in these minutes or the recent Statement on the Conduct of Monetary Policy that would lead to a move in November. We remain comfortable with our view that the overnight cash rate will remain steady for the next few years. “
Tom Kennedy, JPMorgan
“Following today’s minutes we retain our view for the RBA to be on hold for the remainder of 2016, notwithstanding any unexpected deterioration in cyclical activity data….From here, the key uncertainty for the RBA is likely to be the persistence of low inflation. Our bias remains to think that the RBA will deliver a further 50bps of easing in 1H17, taking the cash rate to 1%.”
Su-Lin Ong, RBC
Despite some pickup in house prices more recently, the minutes continued to suggest a degree of comfort at the broad aggregate level. They highlight a general moderation in house price growth over the last year, a decline in turnover and lower housing lending growth as macro prudential measures exert some influence. At this juncture, we think that the case to cut again before the end of the year is not particularly compelling.
Paul Brennan, Citi
The RBA may have overestimated household consumption growth. The view was that “growth in household consumption was expected to have remained around average in the June quarter”. But the Q2 GDP data showed that household consumption growth had halved. The minutes also said that liaison contacts reported that employers had been more cautious in their hiring decisions, a remark that suggests the shock August employment data may not have been a one off event. Hence, we still hold the view that the RBA will need to cut again before the cycle in complete, with November being the next live meeting.