Monday, 19 December 2011

RBA Minutes - What's Happened Since

The minutes of the 6 December RBA Board meeting were written in a way to suggest the decision to cut was not a forgone conclusion. I suspect the truth lies with the decision being a done deal as global conditions and local data remained subdued.

How ever the minutes were crafted, the information available since that meeting confirm further problematic data which will no doubt force the RBA to cut again in February.

7 Dec: GDP +1.0% - much as anticipated by the RBA.

RBA Minutes noted: The national accounts for the September quarter would be released the day after the meeting. Growth in private demand was expected to be strong, led by business investment. Growth in output, however, was expected to be less than that of demand because of the high import intensity of much of the current investment and the appreciation of the exchange rate.

8 Dec: Labour Force - jobs fell 6,700, unemployment rate up to 5.3%, participation rate down to 65.5% - probably weaker than anticipated given jobs fell.

RBA Minutes noted:
Employment was estimated to have risen by 10,000 in October and the unemployment rate had declined slightly to 5.2 per cent, which was ¼ percentage point higher than earlier in the year. The various forward-looking indicators continued to point to moderate employment growth.

12 Dec: International Trade - surplus $1,595m; exports down for 2 straight months - no surprise.

12 Dec: Housing Finance - rose 0.7%; still soft.

RBA Minutes noted:
Housing credit was increasing at an annualised rate of 5–6 per cent, as it had for much of the past year.

13 Dec: Business conditions +1 point; business confidence -2 points. Little changed from previous month, but still soft.

RBA Minutes noted:
Measures of business confidence had, however, generally picked up a little over the past couple of months, after earlier large falls. Measures of current conditions were around average, although large differences continued to be evident across industries.

15 Dec: Consumer sentiment: fell 8.3% to be at a level consistent with a retail sector recession.

RBA Minutes noted:
Surveys suggested that consumer sentiment had also picked up and was now back to a little above its long-run average level.

Global conditions have not provided any encouragement from the RBA's assessment that:
It seemed highly likely that the sovereign credit and banking problems would weigh heavily on economic activity there over the period ahead, and there was a non-trivial possibility of a very sharp contraction. Global financial markets had experienced considerable turbulence, and financing conditions for banks had become much more difficult, especially in Europe. Overall, members concluded that growth in the world economy was likely to weaken over the coming year.

There is still so much that will happen over the next 7 weeks until the February RBA meeting. Critical local indicators will be the labour force and CPI releases in January. Soft results here will not only lock in a 25 basis point cut, but open the door for a cut of 50 basis points. Global issues, as always, will help guide the RBA thinking with all eyes on China, commodity prices, financial conditions and G7 growth.

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