The RBA held the official cash rate steady at its board meeting in November and so the minutes of the meeting were only expected to provide the odd hint as to the RBA’s thinking of the path Australian monetary policy is likely to take.
As AMP Capital’s Shane Oliver put it, there was “nothing new” in these minutes. However, not everyone agreed. JP Morgan Research said the minutes “reveal growing uncertainty around the outlook for wages”. The RBA stated wage inflation “had been somewhat weaker than expected” but as Philip Lowe said later in the day, “In Australia, we are still some way short of our estimates of full employment of around 5%, so it is not surprising that wage growth is below average.”
Financial markets were largely unmoved. 2 year bond yields were steady at 1.94% while 10 year yields added 1bp to 2.57%. The Aussie dollar dropped after release of minutes but then moved up around 0.25 U.S. cents to around U.S. 75.80 cents over the rest of the day.
ANZ Head of Australian Economics David Plank thought the main takeaway of the minutes was the discussion regarding monetary policies of other central banks. “While we agree there are no ‘mechanical’ implications, the path of monetary policy elsewhere is still important in thinking about the likely direction of RBA policy. In particular, the impact on the AUD [dollar] from a domestic monetary policy shift is likely to be less than otherwise [expected] if the shift is in the same direction as those in other countries. Our expectation of two RBA rate hikes in 2018 will be harder to sustain if the Fed does not tighten further from this point.”
