MNI POLICY: RBA Tone Firmly Hawkish; Takes Account Of Risks

By Sophia Rodrigues

     SYDNEY (MNI) - The minutes of the Reserve Bank of Australia's September

board meeting firmly leans on the hawkish side, in line with the cash rate

statement and despite an increase in the range of uncertainties and risks. 

     Below are the key observations we made from the minutes published Tuesday:

     --The RBA showed more confidence in its current monetary policy stance,

saying this was based on not just its forecasts but also takes into account

"associated risks." In the August Statement on Monetary Policy, the RBA pointed

to several risks to its forecasts, which included some upside risks from

depreciation in the Australian dollar. It appears that the RBA is more confident

of the upside risks than the downside ones.

     --The RBA said modest depreciation of the Australian dollar was helpful for

domestic economic growth. The RBA also said that recent data had not changed its

assessment that GDP growth was likely to remain above potential throughout the

forecast period, and inflation was likely to increase over time. Both these

comments show the RBA remains confident in its guidance that the next move in

the cash rate would more likely be an increase than a decrease -- a line it

reiterated yet again.

     --The RBA didn't show any concern about the announcement in mortgage rates

made until the board meeting date which included one big four bank. These

increases would imply a small rise in the average outstanding variable housing

loan rate and would unwind about half of the decline observed in the average

housing loan rate over the preceding year, the RBA said. Significantly, the RBA

reiterated that lenders continued to compete strongly for new housing borrowers.

     --The RBA's comments on the labor market which is key to its monetary

policy guidance, was positive overall. The RBA pointed to data on vacancy rates

and survey measures of employment intentions, and said that continued to point

to above-average growth in employment in the near term. "Survey measures of

employment intentions" was an addition this month. The RBA also said its liaison

continued to point to a modest increase in private sector wages growth in coming

quarters, and that the effects of the recent increase in minimum wage would

boost wage outcomes in the September quarter.

     --The RBA made an interesting comment on the Federal Reserve's rate rises,

saying that actual policy changes had been more closely aligned with the FOMC's

median projections than with market expectations. Related to that it pointed out

that markets were seeing adjustments to stance of monetary policy in Australia

and New Zealand, as likely to be "some way off."

     --The RBA reiterated that the direction of international trade policy in

the U.S. continued to be a source of uncertainty for the world economy. For the

local economy, uncertainties from abroad and low wages growth continued to be

risks, the RBA said.

     --Once again, the RBA didn't appear to be worried about housing prices. It

merely noted that national housing prices had fallen moderately and that decline

in prices in Sydney and Melbourne had followed significant growth over preceding

years.

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

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