The minutes of the October RBA board meeting were released and markets took the view that the tone of the notes was vaguely “hawkish”. By the end of the day cash rate markets were implying a slightly lesser chance than previously (26%) of a November rate cut and a now only a 58% chance of December cut. 10y bond yields rose 7bps on the day. The immediate reaction of the currency market was the dollar rising against the greenback immediately after the 11.30 am release time but this settled back over the course of the day.
The key points of the minutes can be summed up as follows:
- A weaker Chinese economy and September’s equity market gyrations did not affect funding and “creditworthy borrowers” who were still able to access funding (see new debt issues for September). Chinese policy decisions require more time to feed into the economy, and conditions in the United States and euro area had continued to improve. Monetary policies globally remained very stimulatory and lower oil prices would support economic activity in most of Australia’s trading partners.
- Resource exports had grown strongly and further growth was expected as liquefied natural gas production ramped up. The lower exchange rate was expected to support growth, particularly through a larger contribution from services exports.
- Mining investment would continue to decline. Non-mining business investment would remain subdued but it was expected to increase as a result of a lower currency and given an expected extra demand for consumer goods.
- “Very low” interest rates would continue to support new house/apartment building and household consumption. The minutes noted there were indications that the measures implemented by APRA had slowed the growth in lending for investment housing and the RBA was continuing to work with other regulators to contain risks which “may arise from the housing market”.
- Spare capacity remained and wage pressures continued to be weak and as a result, domestic cost pressures were likely to remain well contained, although the lower exchange rate was expected to lead to prices rises in imports.[/private]