REPEAT: MNI: RBA Overestimated GDP At Dec Board Meet: Minutes

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