MNI ANALYSIS: RBA Minutes Suggest Slight Upgrade in Outlook

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By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia appeared more optimistic on

the progress towards its unemployment and inflation goals, thus keep alive

prospects for the first hike in the cash rate by the end of this year or early

next year.

     The minutes of the March board meeting, published Tuesday, showed that

discussions around wage growth, employment, non-mining business investment and

global economy including global inflation was slightly more positive than the

month before. 

     There was very limited discussion on the threat from global trade war with

the RBA merely saying there was risk to the global economy and therefore to 

Australia if other countries joined trade protection

     The slightly more positive outlook was likely the reason Governor Philip

Lowe, in his speech a day after the board meeting, strengthened the forward

guidance on monetary policy by saying the economy was moving in the right

direction and interest rates were still quite low which made it likely the next

move in interest rates will be up, not down.

     The RBA didn't make any mention that Q4 GDP would likely be lower than

expected. The GDP data was due a day after the board meeting but the partial

indicators pointed to a weaker-than-expected outcome. 

     Instead the RBA tweaked the wording of GDP outlook by saying growth was

expected to exceed potential growth over 2018. This compares with wording in the

February minutes that GDP was expected to average little above 3% over next two

years. Despite the tweaks, the RBA maintained the outlook that further progress

on reducing unemployment rate and bringing inflation closer to target was

expected over the period ahead but this process was likely to be gradual.

     On wage growth, the RBA mainly focused on trends across the states, noting

that wage growth had risen to almost 2.5% in Victoria, and in Queensland and

Western Australia, they rose from the lows recorded the year before but in New

South Wales they had been steady around 2%. Importantly, the RBA pointed to wage

growth pickup in industries with relatively high share of employees on

individual agreements. 

     Overall, there was a tiny upgrade in the outlook for wage growth with the

RBA acknowledging there may be a pick-up in wage growth, though it was not

definitive yet. Previously, the RBA said "wage growth was yet to pick up." The

RBA now says, "wages growth was expected to rise gradually."

     There was likely a lengthy discussion on drivers of non-mining business

investment and the key conclusion was that there some upside risks to the RBA's

forecasts for growth in non-mining business investment over the medium term.

     On the labor market, the RBA said business survey measures of hiring

intentions and job advertisements pointed to a continuation of above-average

growth in employment over the coming months. 

     On the global economy, the RBA said overall conditions in the global

economy has continued to improve. In particular, the RBA said some indicators

suggested conditions in early 2018 had been more positive in the manufacturing

and services sectors for a number of east Asian economies. The commentary on

China was more positive. And significantly the RBA said "there had been some

signs of inflationary pressures building" globally.

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

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