(Australian Associated Press)
The Reserve Bank is likely to hold interest rates amid mixed messages from the domestic economy and the uncertain global outlook.
The RBA board’s discussion at its November meeting two weeks ago kicked off with a conversation about how earlier economic forecasts have not matched reality.
“Members commenced their discussion of the domestic economy by considering how outcomes over recent years had differed from earlier forecasts, noting that the differences for key variables, including inflation, the unemployment rate and GDP growth had been modest by historical standards,” said the minutes of the meeting, released on Tuesday.
JP Morgan chief economist Sally Auld said the RBA identified mixed messages from the housing market, broadly balanced risks around inflation, uncertainty around the extent of spare capacity in the labour market and long term risks to Chinese growth.
She said uncertainty about the domestic outlook and China’s growth prospects would keep interest rates on hold for now.
“Policy will be on hold for a while until the RBA can feel more confident in its judgments around housing and the labour market,” Ms Auld said.
“Better commodity price outcomes and less intense downside risks to near-term growth outcomes in China work to facilitate this pause.”
Royal Bank of Canada chief economist Su-Lin Ong noted the minutes were largely out of date because the RBA meeting had occurred before last week’s surprise US presidential election outcome.
“The minutes have also been somewhat overtaken by the outcome of the US election, which is prompting some reassessment of US growth near-term, possible implications for the US Federal Reserve, and more complicated longer-term implications for global trade and activity,” she said in a note.
Ms Ong said the RBA would hold rates until at least 2017 amid the heightened global uncertainty and as it had already twice cut rates this year.
“We await further policy details from the new US administration, but some upside risk to the US growth trajectory near-term and implications for the Fed temper the RBA’s already mild easing bias all else being equal,” she added.