MNI POLICY:RBA Tone Leans Hawkish On Improved Consumption View

By Sophia Rodrigues

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

meeting appeared to lean on the hawkish side, in contrast to the cash rate

statement and the Statement on Monetary Statement where the discussion of risks

appeared to be on the dovish side.

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

     --Household consumption has been a key element of the RBA's outlook because

of its implications for growth and inflation, and for the first time in a long

time, the RBA said some of the uncertainty around the outlook for consumption

has reduced. Growth in household disposable income due to increase in average

earnings per hour and hours worked, along with recent increase in minimum wages,

future tax cuts and expectations of a further tightening in labor market

conditions had all provided "more comfort" that household income growth would

increase gradually and support consumption outlook, the RBA said.

     --Also supporting the consumption outlook is boost to real household

disposable income due to the declines in administered prices. As MNI reported,

and validated by Governor Philip Lowe at the parliamentary testimony last week,

the declines in administered prices would reduce cost-of-living pressures and

people will have more money to spend on other things. "That will create more

demand elsewhere in the economy and it will gradually lift spending and prices

elsewhere in the economy," Lowe said.

     --In the minutes of the May board meeting (the previous time the forecasts

were updated), the RBA said there were risks to the forecasts in both

directions. There was no such comment in this minutes. Rather, the RBA appears

more confident about its current monetary policy stance which it said "would

continue to support economic growth and allow further progress to be made in

reducing the unemployment rate and returning inflation towards the midpoint of

the target." The RBA also reiterated that the next move in the cash would more

likely be an increase than a decrease.

     --International economic developments appeared to be more important than

domestic conditions, given it was the first topic of discussion at the meeting.

Significantly, the RBA said risks to the international economic outlook had

"shifted." On the downside were risks from global trade tensions but on the

upside was risk that U.S. growth and inflation could be stronger than expected,

that would lead to stronger global growth and could result in depreciation of

the Australian dollar, both positive for the Australian economy.

     --The RBA doesn't appear to be worried about housing prices. It merely

noted that prices in Sydney and Melbourne had declined further in July and

across a broad range of properties but pointed to increase in Hobart, and stable

prices in Adelaide and Canberra. Despite easing in established housing market

conditions, dwelling investment was expected to remain at a high level, the RBA

said.

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

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