Monday, 16 April 2012

Cherry Picking the RBA Minutes

Below are some cherry-picked comments from the RBA Board Minutes for April released this morning.

Make up your own mind whether the RBA should have cut rates from current levels or not.

The growth rate of the world economy was expected to be at a below-trend pace in 2012, with ongoing weakness in Europe and an easing in the pace of growth in China.

The financial problems in Europe continued to be a potential source of adverse shocks to the world economy, despite downside risks to near-term global growth having receded somewhat over the past month.

Growth in the Chinese economy had clearly slowed over the past six months in response to a policy-induced softening in domestic demand and weaker external demand.

After peaking in the September quarter, Australia's terms of trade fell by almost 5 per cent in the December quarter 2011, owing to declines in bulk commodity prices. Since the start of 2012, spot prices for coal had fallen by 6–7½ per cent, but iron ore prices had increased by around 10 per cent

To the extent that higher oil prices reflected concerns about supply, they were adding to the downside risks to the global recovery and upside risks to headline inflation.

Members noted that the national accounts for the December quarter had shown an increase in real GDP of 0.4 per cent in the quarter and 2.3 per cent over the year, which were both lower than expected.

Growth in exports over 2011 had been weaker than expected, mainly because of lower coal exports... Service exports had also been weak, reflecting a decline in the number of visas for foreign students as well as the effects of the higher exchange rate and lower external demand.

Recent indicators show that consumer sentiment fell in March to be a little below its average level, with household concerns regarding future unemployment at their highest level since mid 2009.

The level of non-mining investment had been flat over 2011, and recent surveys of business intentions suggested that non-mining investment was likely to remain sluggish for some time. Business credit growth had increased slightly over recent months, but remained low.

Labour market conditions remained subdued, with employment falling by 15,000 in February and showing little change for much of the preceding year; increases in employment in mining, health and public administration had broadly offset declines in employment in manufacturing, retail trade and accommodation & food services.

Members noted that an easing in average hours worked and a decline in the participation rate were indicative of a softer labour market than that implied by the unemployment rate.

Recent business surveys and liaison indicated that firms expected wages to continue to grow at around, or a little slower than, their recent pace.

The Australian dollar had depreciated over the past month, but still remained at a high level. The recent depreciation, in part, reflected increased concerns among market participants about the effects of the moderation in Chinese growth on the Australian economy.

Members noted that recent information on the world economy was consistent with growth at a below-trend pace in 2012 and slower than in 2011.

For the domestic economy, members observed that the balance of recent data suggested that output growth was somewhat below trend over 2011.

They noted … soft overall conditions in the housing sector and the likelihood of significant fiscal tightening in the next few years.

Despite the rate of unemployment showing little change for some time, it was apparent that labour market conditions had softened over the course of 2011.

Over the past month, domestic financial conditions had been mostly unchanged, with interest rates for borrowers remaining close to their medium-term averages, credit growth modest and the exchange rate remaining high in the context of an easing in the terms of trade.

The Board had eased monetary policy late in 2011. Since then members had lowered their assessment of the pace of growth somewhat.

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