The April meeting of the RBA held on the first Tuesday of the month left the overnight cash rate steady at 1.50%, as expected. Historically, RBA meetings in April have been uneventful as rate changes are typically made in February, May, August and November after quarterly CPI figures have been released. However, the minutes from such meetings provide clues with regards to the RBA’s state of mind and where their focus is likely to be in coming months.
The minutes covered all the usual territory; the global economy, the domestic labour market, international financial markets and stability of the domestic financial system. “Conditions in the global economy had continued to improve over 2017” and international financial markets “generally had been relatively stable over the preceding month.” Cyclone Debbie received a mention but the RBA did not consider it to have a major effect. However, the minutes from the meeting indicated the RBA board is focussed on two major issues.
One of these is the state of the labour market and its effect on consumer confidence and spending. The other is the risk to the banking system which emanates from high levels of household debt, which is tied to the state of house prices, especially in Sydney and Melbourne. The labour market “had been somewhat weaker than had been expected” while the domestic financial system was facing “[r]isks related to household debt and the housing market more generally…” Perhaps in an ominous tone, the minutes pointed out these risks “had increased over the preceding six months.”
Bill Evans, Westpac’s chief economist, singled out the final sentence in the “Considerations for Monetary Policy” section as a sign of the RBA’s concern. “The Board judged that developments in the labour and housing markets warranted careful monitoring over coming months.” Adam Boyton, Deutsche Bank’s chief economist, agreed. “We think the key point there is the final sentence – namely it will take time to see how these measures play out.”