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Repeats Story Initially Transmitted at 01:32 GMT Jul 17/21:32 EST Jul 16
By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia continued with its optimistic
tone in the minutes of the July board meeting, published Tuesday, and more
importantly, reinstated the line that the next move in the cash is more likely
to be an increase than a decrease.
     Below are the key observations we made from the minutes:
     --After omitting the line that the next move in the cash rate would be up,
rather than down in the June minutes, the RBA reinstated it in the minutes of
the July meeting. The RBA said that the members continued to view the
strengthening economy as likely to deliver further progress in reducing the
jobless rate and returning inflation to target. And "in these circumstances,
members continued to agree that the next move in the cash rate would more likely
be an increase than a decrease." The RBA also said there was no strong case for
a near-term adjustment in monetary policy.
     --It may be noted that while many consider the RBA's language on the
possible direction of the cash rate as a forward guidance, the RBA itself
doesn't see it as a guidance. At an ECB forum last month, Governor Philip Lowe
specifically said the RBA hasn't used forward guidance unlike several other
central banks.
     --RBA's confidence on the direction of the cash rate mainly stems from
three key factors -- the outlook on the labor market, developments in money
markets and the housing market. The RBA continues to believe the outlook for the
labor market is positive and stronger labor market conditions and growing skills
shortages would lead to pick up in wages growth over time. On the money markets,
the RBA is watchful about how persistent the rise in money market rates would be
but is taking comfort from the fact that that the rise in funding costs so far
is low relative to history. On the housing market, the RBA noted the fall in
prices in Sydney and Melbourne but didn't make any comments that suggests it is
     --On the other hand, commentary on China was slightly downbeat with the RBA
stating that growth there appeared to have moderated a little, and there was
some uncertainty around how the authorities would respond to the trade-off
between growth target and financial stability risks. Importantly, the RBA also
noted that downside risks to the global growth has increased over the prior
month, and an escalation of trade tensions could harm global growth.
     --There was detailed discussion on the high level of household debt in the
minutes from a special paper prepared for the meeting. The RBA noted that the
high levels of household debt could affect economic outcome, and agreed that
household balance sheets continue to warrant close and careful monitoring as a
result of tighter lending standards.
     --There was also more than usual commentary on housing credit where the RBA
noted that there was both a softening in demand for credit and tightening in
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: