Although the minutes of the October RBA meeting were not expected to provide much in the way of news, observers were looking forward to hints and clues as to how the views of new Governor Lowe would differ from his predecessor.
The short answer; not much. However, there was the odd section which was noteworthy. Westpac chief economist Bill Evans pointed to the part of the minutes regarding underemployment, which is a theme which has emerged this year, both here and in the US. “The minutes point out that even though the unemployment rate has fallen by half a percentage point over the past year the underemployment rate, which captures workers who would like to work more hours, has increased.” He also noted then reference to the next CPI report out at the end of October. “Explicitly recognising the upcoming inflation report is not a standard approach. Certainly it was referred to explicitly in the July minutes when we were clearly conditioned to see the June quarter inflation report as critical to the August policy decision.…We have not been of the view that the next inflation report will have the same significance.”
Here’s what the economists said:
Bill Evans, Westpac
Less emphasis on specific inflation targeting and direct consideration of the implications of policy for housing and labour markets is clearly spelled out. Based on the Governor’s apparent uncertainty around housing and the labour market at the moment it is clear that he would not welcome a sharp negative surprise on current inflation. We do not think that such an outcome is at all likely and we also believe that his tolerance for a very low number will be high but not infinite.
Commonwealth Bank Global Markets Research
The Governor will be keeping his eye on the labour market and the housing market, but at the end of the day, the RBA still targets CPI. And with neither the labour market nor the housing market actively suggesting a further rate cut would be deleterious, the RBA will be forced to lower the cash rate further to shorten the long wait.
Jo Horton, St George
The minutes of the RBA’s October board meeting highlighted the need to look carefully at the CPI data due on 26th October. A downward shock would raise the prospect of a November or December rate cut. A benign outcome could take rate cuts in 2016 off the table. The RBA believes that under its current settings there is “a reasonable prospect of sustaining growth in economic activity that would support further employment growth and, in time, a gradual increase in wage growth and inflation.” We have our doubts.