RBA reiterated its rate views in the February meeting minutes but sounded more cautious regarding the downturn in housing markets. The central bank maintained that “given that further progress in reducing unemployment and lifting inflation was a reasonable expectation, members agreed that there was not a strong case for a near-term adjustment in monetary policy.”
And, the minutes echoed Governor Philip Lowe’s comments too. That is, “there were significant uncertainties around the forecasts, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate.” Most importantly, “the probabilities around these scenarios were now more evenly balanced than they had been over the preceding year, when an eventual increase in the cash rate had appeared more likely.”
RBA tied the subdued consumption growth in Q4 to the possibility of being influenced by “lower housing prices and reduced housing market activity”. On housing, RBA admitted that “dwelling investment was also expected to decline more sharply than previously expected, consistent with the decline in residential building approvals and the fall in housing prices”.
And, “members observed that if prices were to fall much further, consumption could be weaker than forecast, which would result in lower GDP growth, higher unemployment and lower inflation than forecast.”