The minutes of the RBA’s May meeting were largely unchanged from the April minutes and references to the labour market, house prices and household debt all featured prominently. The RBA board thought “developments in the labour and housing markets warranted careful monitoring” but there does not appear to be any sign of a rate change in the short-term as arguments for higher rates are offset by arguments against.
The outlook for our trading partners in the global economy “remained positive” and the Australian economy appears to have started 2017 well, or at least at a “moderate pace”. Domestic inflation “had been as expected in the March quarter” and while employment figures “had been somewhat mixed”, employment growth was expected as “forward-looking indicators” such as ANZ’s job advertisement survey “suggest…spare capacity in the labour market would decline gradually.”
References to the two ongoing problems of house prices and household debt remained mostly unchanged. With regards to house prices, Sydney, Melbourne and Perth were all mentioned again. In the April minutes, there was reference to signs Perth prices were “stabilising”. Well, not quite. “Conditions in established housing markets in Sydney and Melbourne remained robust, but housing prices had been falling in Perth.”
Household debt, the fuel for house price increases, was a problem. “Growth in housing credit had continued to outpace growth in household incomes, which suggested that the risks associated with household balance sheets had been rising.” The risks are almost certainly still rising.
Here’s what a few economists had to say about the minutes:
Tapas Strickland, NAB
“The RBA is likely to keep rates on hold for some time as it judges the effectiveness of recent macro-prudential policies in controlling housing risks and monitors momentum in the labour market. Last month’s bumper jobs figures should help alleviate concerns the RBA had over the labour market in the short term, but this will be an important area to watch. NAB sees the RBA on hold in 2017 and 2018, though the minutes suggest a macro bias to ease constrained by housing and indebtedness concerns.”