The Reserve Bank believed economic growth was close to potential when it chose to leave interest rates steady this month.
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“Over the first half of the year, GDP growth had been expected to have been close to estimates of potential”, the RBA said in the minutes of its September board meeting, released Tuesday.
“Since the global financial crisis, borrower households have been likely to use more of an increase in their cashflow from any source to repay their debt, which might imply a delay in the response of consumption spending to low interest rates”, the official minutes from the RBA’s September 6 board meeting said. The September monetary policy announcement was the last announcement made by the retiring governor Glen Stevens.
Minutes of the RBA’s latest monetary policy meeting, released on Tuesday, show that the central bank is looking below the surface of the numbers.
The central bank minutes also said consumer spending hadn’t lifted in response to recent interest rate cuts because households were probably prioritising paying off debt.
In the last 10 years, Stevens has presided over a recession free economy.
Regarding mining and the investment outlook, the RBA noted an “improvement in sentiment in parts of the mining industry”, although it continued to note a further “large decline” in mining investment in 2016-17.
The new Reserve Bank of Australia governor and the federal government have renewed their vows on inflation, emphasising the flexibility of the longstanding two to three per cent target.
The RBA said indicators pointed to weaker conditions in the housing market than a year earlier. It noted that the number of auctions had declined, and in recent months the value of housing loan approvals had been broadly steady, but housing credit growth had been lower.
“Housing market conditions overall appeared to have eased since the previous year, although the dwelling construction cycle remained on a strong upswing”.
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Australia’s central bank also warned an “appreciating exchange rate could complicate the necessary adjustments in the economy”. The RBA indicated that “best available” data indicated a further cooling in the housing market, once again, not expressing any concerns if the need arose to ease policy further down the road.
