The RBA kept its official cash rate target steady at its November board meeting, largely as expected. The rate at which the RBA wishes banks to lend to each other in the market for unsecured overnight loans remained unchanged at 0.75%.
Around February of this year, the RBA began to publicly move away from a tightening bias. By April, “there was not a strong case for a near-term adjustment in monetary policy” and, by May, the transformation to an easing bias had been completed. In June, a 25bps rate cut was announced. Additional cuts followed in July and October.
The minutes of the November meeting have now been released and the board’s deliberations focussed on the RBA’s economic forecasts as well as past and future rate cuts.
The RBA’s forecasts for GDP growth, unemployment and inflation took up much of the discussions regarding domestic economic conditions. While some discussion of these topics is hardly unusual, this month’s minutes devoted significantly more time to these topics. The minutes clearly state the Board’s expectations had not been met.
“Over the year since the November 2018 forecasts, GDP growth had been much weaker than expected. Inflation had also been lower than forecast.” The culprit was the “the extent and breadth of the spillovers from the housing downturn…” The RBA admitted it had underestimated the housing downturn’s effects on “consumption, household income, dwelling investment and inflation…” and their flow on effects for growth and inflation. However, employment growth had been strong despite lower-than expected GDP growth and “the unemployment rate had been only marginally higher than forecast.”