MNI 5 Things: RBA Minutes Point to Global Growth Upside Risk

By Sophia Rodrigues

     SYDNEY (MNI) - The following are the five key observations we made from the

minutes of the Reserve Bank of Australia's board meeting on February 6,

published Tuesday. 

     --The first topic for discussion at the meeting was "International Economic

Conditions" rather than "Domestic Economic Conditions," which suggests

discussion on global economy was more important this time. Here the RBA has

noted possibility of upside risk because global growth could surprise on the

upside, and if it did it would boost growth and inflation in Australia,

particularly if the exchange rate were to depreciate.

     --Domestically, the outlook for underlying inflation is for a gradual rise

to around 2.25% by mid-2020 -- the end of the RBA's forecast period. But a key

assumption in this rise is faster growth in labor costs as spare capacity in the

labor market is absorbed.

     --The outlook for domestic growth is supported by improvement in business

conditions and prospects for non-mining investment but the RBA thinks there is

still a risk that consumption might turn out to be weaker than forecast.

     --The RBA appears to no longer see rent inflation weighing on consumer

price index inflation. That outlook has turned slightly positive with the RBA

noting that rent inflation in the CPI could be expected to rise gradually over

the forecast period. This is because growth in advertised rents nationwide has

risen and rents were no longer falling as quickly in Perth. But offsetting this

is continued subdued outlook for consumer durables, and food prices (excluding

fruit and vegetables).

     --The discussion on exchange rate is limited (note in the opening statement

to the Parliamentary Economics Committee RBA governor Philip Lowe made no

mention of the exchange rate). The RBA noted that the U.S. dollar has seen a

broad-based depreciation. In case of the Australian dollar, the RBA merely noted

its slight appreciation in trade-weighted terms which is within the relatively

narrow range of the last couple of years. The RBA did reiterate though that an

appreciating exchange rate would be expected to result in a slower pick-up in

economic activity and inflation than forecast.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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