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Free AccessREPEAT: MNI: Household Consumption Risk Means RBA Tad Dovish
Repeats Story Initially Transmitted at 04:07 GMT Dec 20/23:07 EST Dec 19
By Sophia Rodrigues
SYDNEY (MNI) - A more gloomy view on the outlook for household consumption
was the highlight of the minutes of the Reserve Bank of Australia's December
board meeting, meaning 2017 ended with a downside risk to its monetary policy.
In the minutes, published Tuesday, the RBA for the first time described the
outlook for household consumption as a "significant risk" in what appeared to be
a deliberate, but subtle, shift in language to signal an important change in
view.
As recently as the cash rate statement on Dec. 5, the RBA described
household consumption as a source of "uncertainty." Some variation in language
between the cash rate statement and the minutes is not uncommon simply because
the minutes give a more detailed account of the discussions at the meeting.
But sometimes, and in this case in particular, the variation is significant
because it signals the potential of changing the direction of monetary policy
from an on-hold-for-longer stance to the potential for further easing. The use
of the word "risk" indicates a directional shift, in this case downwards.
The variation is more significant given the minutes had very positive tones
around growth and employment prospects for the local economy and for growth in
the global economy. But it is the characterization of household consumption that
matters most to the monetary policy outlook.
The RBA noted that conditions in the global economy had improved over the
course of 2017 and that the outlook had been upgraded. In addition, the RBA said
recent domestic economic data had increased confidence that there would be
further progress on the jobless rate and on inflation. The RBA also noted that
the outlook for non-mining business investment had improved further and the
pick-up in public infrastructure investment was also supporting overall growth.
But the key consideration for the monetary policy outlook is not strong
stronger growth or an improved labor market, but rather how those factors
translate into wage growth, an increase in household income and an acceleration
of overall inflation.
The RBA's worry is that the stronger outlook for growth and the labor
market won't be sufficient to push up wage growth and thus income growth.
This creates a clear downside risk for household consumption, which, if it
pans out, will affect the RBA's growth and inflation forecasts.
And if it indeed results in a downgrade to those forecasts, it would put a
rate easing back on the table. But any decision to ease would, as usual, be
dependent on what else is happening in the local economy, especially in the
housing market, with household balance sheets, and with the exchange rate.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.