The February RBA meeting is one of the four months of the year in which most RBA rate changes have been historically made. The reason for this is the meetings in these months follow quarterly CPI releases at the end of the previous month. This February no change was made to the cash rate.
The release of the minutes from the February meeting show the RBA board is concerned about potentially-slower rates of growth in consumer spending and a directionless labour market. On the other hand the Board acknowledges the recent improvement in the terms of trade as well as the view the recent drag on growth from investment numbers will cease soon as investment numbers come back to trend.
Adam Boyton, Deutsche Bank’s chief economist thinks a subtle change in the wording of the minutes holds a clue to the RBA’s view. “The final paragraph of the minutes hold an important tweak in our view, specifically, the inclusion of the phrase ‘and the level of the cash rate’…That inclusion of ‘the level of the cash rate’ is noteworthy as it implies the hurdle for easing is quite high given how low rates already are.”
Bill Evans, Westpac chief economist noted the RBA’s view of the opposing forces acting in Australia’s economy at the present. “We see nothing in these minutes to change our view that the official cash rate will remain on hold throughout 2017 and 2018. Markets continue to anticipate rate hikes in 2018 while a considerable number of commentators are predicting rate cuts in 2017. The middle course seems a much more likely outcome particularly given our view that growth momentum can pick up in 2017 but slow markedly through 2018 posing risks for the labour market and economic activity.”