RBA Board Minutes – October 2012
■ The RBA minutes had a dovish tone, as would be expected given the recent rate cut.
■ The RBA look to have downgraded their domestic growth forecasts for the next year, making the case for lower rates.
■ Slower global growth and a lower mining capex peak underlie the growth downgrade.
■ One new theme in the minutes is that the looming growth “pothole” which follows the mining capex peak may not be as deep or as wide as current thinking has it.
■ We expect a 25bpt cut in November, taking the official cash rate to 3%, which would match 2009 lows.
The RBA cut the cash rate to 3¼% at the October Board meeting. The minutes of the October meeting indicate that the RBA have downgraded their domestic growth outlook for the next year, which allowed the central bank to lower the cash rate.
European developments remain a key concern unnerving the RBA. The central bank noted that there is uncertainty about the “effectiveness” of the various unconventional monetary policy actions implemented by the ECB and others.
The slowdown in Chinese growth is also weighing on RBA thinking. Although, Chinese data since the October board meeting has generally been more positive. The minutes mentioned the decline in commodity prices over August and September (which have partly reversed) as a result of lower Chinese steel demand. Although it was also noted that we are yet to see these effects of lower commodity prices on domestic activity.
The minutes indicate that delays or cancellations in mining projects and cost overruns have forced the RBA to lower their resource investment outlook. They now expect that the peak in resource investment could occur sooner and at a lower level than initially anticipated. Interestingly, the minutes also mention that the lower peak in mining capex means that there would be a “more gradual” decline in resource investment, which means that the looming “growth pothole” following the peak does not look to be as deep or as wide as current thinking has it. Therefore, there is less urgency on the non‑mining part of the economy to pick up the load as the mining construction boom passes through.
A “new development” in the minutes was the mention of the risk of lower tax receipts, as a result of slower growth and lower commodity prices. The desire for a Budget surplus means that fiscal policy could be tighter than expected over the coming year, which could dampen domestic growth outcomes.
The RBA’s inflation outlook has not changed. The RBA expect that inflation will remain within the target band of 2‑3% over the next one‑two years. The QIII CPI is released next Wednesday (24th October) and we expect the headline CPI to print at 0.9%/1.5%pa. Underlying CPI over QIII looks likely to print around 0.6% /2.2%pa.
The risk of lower‑than‑expected domestic growth over the next year combined with contained inflationary pressures mean that going forward, the cash rate is likely to remain low. We expect a further 25bpt rate cut in November, which would leave the cash rate to 3% and matching the lows reached in 2009. On our calculations, this level of the cash rate would be well into stimulatory territory.
The above article is courtesy of CBA Economics Department
■ The RBA minutes had a dovish tone, as would be expected given the recent rate cut.
■ The RBA look to have downgraded their domestic growth forecasts for the next year, making the case for lower rates.
■ Slower global growth and a lower mining capex peak underlie the growth downgrade.
■ One new theme in the minutes is that the looming growth “pothole” which follows the mining capex peak may not be as deep or as wide as current thinking has it.
■ We expect a 25bpt cut in November, taking the official cash rate to 3%, which would match 2009 lows.
The RBA cut the cash rate to 3¼% at the October Board meeting. The minutes of the October meeting indicate that the RBA have downgraded their domestic growth outlook for the next year, which allowed the central bank to lower the cash rate.
European developments remain a key concern unnerving the RBA. The central bank noted that there is uncertainty about the “effectiveness” of the various unconventional monetary policy actions implemented by the ECB and others.
The slowdown in Chinese growth is also weighing on RBA thinking. Although, Chinese data since the October board meeting has generally been more positive. The minutes mentioned the decline in commodity prices over August and September (which have partly reversed) as a result of lower Chinese steel demand. Although it was also noted that we are yet to see these effects of lower commodity prices on domestic activity.
The minutes indicate that delays or cancellations in mining projects and cost overruns have forced the RBA to lower their resource investment outlook. They now expect that the peak in resource investment could occur sooner and at a lower level than initially anticipated. Interestingly, the minutes also mention that the lower peak in mining capex means that there would be a “more gradual” decline in resource investment, which means that the looming “growth pothole” following the peak does not look to be as deep or as wide as current thinking has it. Therefore, there is less urgency on the non‑mining part of the economy to pick up the load as the mining construction boom passes through.
A “new development” in the minutes was the mention of the risk of lower tax receipts, as a result of slower growth and lower commodity prices. The desire for a Budget surplus means that fiscal policy could be tighter than expected over the coming year, which could dampen domestic growth outcomes.
The RBA’s inflation outlook has not changed. The RBA expect that inflation will remain within the target band of 2‑3% over the next one‑two years. The QIII CPI is released next Wednesday (24th October) and we expect the headline CPI to print at 0.9%/1.5%pa. Underlying CPI over QIII looks likely to print around 0.6% /2.2%pa.
The risk of lower‑than‑expected domestic growth over the next year combined with contained inflationary pressures mean that going forward, the cash rate is likely to remain low. We expect a further 25bpt rate cut in November, which would leave the cash rate to 3% and matching the lows reached in 2009. On our calculations, this level of the cash rate would be well into stimulatory territory.
The above article is courtesy of CBA Economics Department
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