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MNI (London)
Repeats Story Initially Transmitted at 05:20 GMT Dec 18/00:20 EST Dec 18
--Central Bank Left Guidance Unchanged, Next Move Seen Higher
By Lachlan Colquhoun
     LONDON (MNI) - The Reserve Bank of Australia left both benchmark rates and
forward guidance unchanged at the December meeting, while over-estimating
domestic growth rates just one day before official data suggested a cooling in
the economy, minutes of the meeting published Tuesday show
     The Bank kept official interest rates on hold at a record low 1.5% and
reiterated guidance that the next move in rates was likely to be higher,
although indicating there was no case for a near-term adjustment. 
     However, the Board also expected annualised GDP data, published on December
5, to be "above most estimates of potential growth and in line with most recent
set of bank forecasts" above 3%. Australian Bureau of Statistics data showed
annual GDP growth at just 2.8%, having grown just 0.3% in the September quarter.
     This was down from 0.9% in the June quarter, a result which delivered an
annualised growth of 3.4% in the year to the end of June.
     The RBA outlook has been for strong employment growth to flow through to
consumer spending, inflation and growth and deliver the conditions in which the
next interest rate movement is "more likely" to be upward. This outlook could be
at risk it the deceleration in growth rates lasts more than one quarter.
     -DOWNSIDE RISKS
     The Bank, however, has identified other downside risks; from slowing global
trade, flat growth in China and developing problems in the domestic housing
market.
     "The outlook for household consumption continued to be a source of
uncertainty because growth in household income remained low, debt levels were
high and housing prices had declined," the Minutes said.
     "Members noted that this combination of factors posed downside risks.
Notwithstanding this, the central scenario remained for steady growth in
consumption, supported by continued strength in labour market conditions and a
gradual pick-up in wages growth."
     Speaking at a public function earlier this month, RBA deputy governor Guy
Debelle said that housing market conditions, with prices falling rapidly during
a time of low mortgage interest rates, was "unchartered territory" for the
Australian economy.
     --INVESTOR HOUSING CREDIT WEAK
     The RBA minutes noted that the growth in housing credit was also "very weak
for investors and had also eased for owner-occupiers", reflecting tighter
lending conditions and some softening in demand.
     "In Sydney, housing prices had fallen by around 9% since their peak in July
2017 to be around September 2016 levels," the RBA Board noted.
     Prices in Melbourne had fallen "under 6%" since their peak in November
2017, although housing prices had firmed in some other smaller cities.
     "The slowing in housing credit growth appeared to reflect both tighter
lending conditions and some weakening in demand," the Minutes said.
     "The focus on responsible lending obligations in response to the Royal
Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry was likely to have reduced some lenders' appetite for lending to both
households and small businesses."
     --JOBS DATA
     Attention will now turn to the employment data from the ABS, set for
release on Thursday, and if the unemployment rate can come down from the current
decade low of 5.0%.
     In the RBA Minutes, the Board noted that employment had "increased solidly"
and had grown 2.5% in the year to October.
     This had flowed through to wages, which had "picked up a little" in the
September quarter to be 2.3% higher over the year.
     Although wages had increased, the growth had been at "roughly the same
rate" as consumer prices over the last five years, leaving real average earnings
"relatively unchanged" despite productivity growth.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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