Australia - RBA Statement on Monetary Policy: AUD has been adjusting to lower commodity prices

Reserve Bank of Australia Statement on Monetary Policy (SOMP)

• Repeats low inflation may provide scope for easier policy if needed
• Sees reasonable prospects for continued growth in the economy
• AUD has been adjusting to lower commodity prices, supporting service exports

• Says makes no material changes to gdp or inflation forecasts

• Cuts unemployment forecast, employment growth strong enough to reduce jobless rate further
• Notable improvement in employment over past three months not expected at time of last SOMP
• Strong service sector growth, subdued wages supporting labour demand

Sees GDP growth at 2.5 pct end 2015

• 2.5-3.5 pct end 2016 and end 2017
• 3-4 pct to end June 2018

Sees underling inflation at 2 pct to June 2016

• 2-3 pct right out to end June 2018

• Pace of GDP growth in December qtr expected to have been below average
• Pick up in consumption is being sustained, liaison suggests retail sales improved over Xmas period
• Drag on GDP from mining investment still expected to peak in 2015/16, non-mining subdued for now
• Says conditions in housing market have eased, growth in investor loans has declined
• China remains a key uncertainty, risk of capital flight could limit scope for monetary easing

Quick Headlines via Reuters

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Here's what I'm taking away from this Statement (the Statement is a key policy document from the bank for the next quarter, and beyond).

Despite the slowdown in China and ongoing risks the RBA is still looking for solid, and indeed accelerating GDP growth. The bank highlighted the role the fall in the Australian dollar has played (Going forward, keeping the AUD from rising is going to be a key challenge for the bank).

The bank is happy, more than happy, with the pace of employment growth, but it hasn't stopped them from being puzzled and raising questions on this pace going forward. They made special note of the growth in the services sector. While they didn't specifically mention it, the growth in this sector from aged care is going to keep on growing, this ain't going away any time soon. I wonder if the bank has missed this (I doubt it, but still). The bank did note further on employment that given the surge, the pace of growth could very well be followed in the near term by a period of weaker employment growth.

Bottom line for monetary policy, although there is scope for further easing (low inflation allows this) I don't see anything in this, or in Governor Stevens' Statement on Tuesday to indicate the bank is even considering further cuts.

One thing that's ticking at the back of my mind is that if employment growth slows, inflation stays low, and the AUD stops falling, the bank may very well cut to try and prompt further weakness in the currency. If you've been following my posts this week you'll recall I've been stressing the strength of feeling within the RBA on not wanting the AUD to gain from here. It woudn't surprise me if they cut, covering it with comments on other matters (of course, they are not going to say its 'cause they want the AUD to fall on the back of a cut'). BUT ... they are not close to doing anything like this at present. Something to keep an eye on in coming months, perhaps.

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Full text: Statement on Monetary Policy

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.