RBA left the policy rate unchanged at 1.5% in June, and made no change to the monetary policy guidance. The central bank remained confident over the global economic outlook. Indeed, it has so far not commented about the slowdown in economic activities in the Eurozone, UK and Japan, etc. At home, the members continued to expect growth to pick up and average a bit above +3% in 2018 and 2019. Meanwhile, the sluggish improvement in wage growth and inflation would continue to some time. An interesting reference RBA made was that “while there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline”. This appears to be a response to those proposing a rate cut to offset the current tightening in credit condition. In short, the RBA should leave the policy rate unchanged for the rest of the year.

On global developments, the central bank noted that “financial markets have been affected by political developments in the Eurozone, particularly in Italy”. It added that “long-term bond yields in most major economies have declined recently and there has been some widening of corporate credit spreads”, compared with last month’s observation about the rising long term yields. Meanwhile, compared with last month’s observation about tighter short-term US yields, RBA noted that “conditions in US dollar short-term money markets have eased recently, although they are tighter than earlier in the year”.

At home, RBA retained the assessment that GDP growth would pick up to average a bit above 3% in 2018 and 2019. The members acknowledged recent slowdown in the job market. Yet they remained confident over the longer-term outlook. Data from the Australian Bureau of Statistics suggests that +52.9K of jobs have been created so far this year, equating to an average increase of +13.2K per month. This is way below the average of +34.6K addition in 2017. The country’s unemployment rate climbed higher to 5.6% in April from 5.4% late last year. The situation signals that the soft wage growth would persist, although the members judged that the trough has been reached. Meanwhile, RBA appeared more comfortable with the current level of Australian dollar, as it removed the reference last month that “the Australian dollar has depreciated a little recently”.

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What worth attention this month is the comment on the housing credit. A noted in the accompanying statement, “housing credit growth has slowed over the past year, especially to investors”. RBA noted that “while there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline”. To us, this is RBA’s response to speculations that the central bank might trim the policy rate in order to ease the credit market. The reference is a confirmation that barring abrupt economic slowdown, the next RBA monetary decision would be rate hike, rather than rate cut.


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