The March RBA meeting is not one of the four months of the year in which most rate changes have been historically made and for that reason alone no one expected anything to happen. Aside from this historical observation, reasons for a rate change in one direction were balanced by reasons for a move in the other direction.
The main points to come from the statement which accompanied the March meeting were somewhat contradictory in what they mean for future RBA action. “Core inflation remains low” is a tick in favour of keeping the cash rate at historically low levels. “The various forward-looking indicators still point to continued growth in employment over the period ahead” is a tick in favour of raising the cash rate positive back to “normal” levels. “Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income” is a tick in favour of higher rates in order to pressure borrowers to be more conservative with their borrowings.
According to economists, there were two things which plainly stood out and each has direct bearing on Australia’s official cash rate. As Westpac’s Bill Evans put it “the commentary around the domestic economy is somewhat less upbeat” and “considerable attention is given to the housing market.”
Most economists touched on one of these points or both of them. Here’s what a few of them had to say.
Bill Evans, Westpac
“We do expect that macro prudential and banks’ self-regulatory policies will be successful in taking most of the heat out of the housing market over the course of the remainder of this year. Even though spare capacity is expected to persist in the labour market and low wage and inflation conditions remain the Bank will not opt for further policy easing given the risks of reigniting house prices.”
Felicity Emmett, ANZ
“Changes to the RBA’s statement were concentrated around the housing market commentary, highlighting the Bank’s concerns about financial stability. The measures announced by APRA last week are expected to help at the margin, but the Bank is clearly concerned about the risks from rising household debt…“We continue to see rates on hold at 1.5% for an extended period, with concerns around persistently low inflation offset by the strength in the housing market.”
Gareth Aird, Commonwealth Bank
The most interesting feature in the governor’s statement today was the second last paragraph, which was new. The entire paragraph was devoted to a discussion on lending for housing. Lowe’s comments come in the wake of APRA’s additional supervisory measures, announced last Friday, to address risks that continue to build within the mortgage lending market. At the margin, the changes should cool investor‑related demand for housing, but not sufficiently so to put a rate cut back on the table.