Welcome to The Signal’s weekly “Macro Minutes.” Each week, we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.
In a policy move predicted in our Weekly Review and Preview, the Reserve Bank of Australia (RBA) announced Tuesday that its cash rate would remain unchanged at 1.75%. Despite the bank’s recent hawkish sentiment rebound since its May cut, the statement scored extremely dovish: -2.02.
As the graph below illustrates, the June statement (in orange) begins the RBA’s new, dovish direction and points toward a potential rate cut to a new record low.
The rebound in sentiment following the May cut was enough of an indication for Prattle to forecast a rate hold in June. However, the bank’s increasingly dovish language this month and citation of low inflation figures may be in an indication that policymakers will lower rates further in the near future to help meet the inflation goal. As stated by Governor Glenn Stevens in the policy decision statement, “Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.”
On the plus side, Australia’s housing market has seen a recent resurgence–with prices in Sydney and Melbourne rising between 1 and 3% in the past month. The RBA may have hesitated to cut rates further at the June meeting in an attempt to provide stable growth in this sector.
Housing market growth aside, the RBA is faced with what Stevens identified as “a lower than average pace” of global economic growth with “conditions [becoming] more difficult for a number of emerging market economies.” He also pointed out that, “Australia’s terms of trade remain much lower than they had been in recent years” due to commodity prices only slightly rising from “very substantial declines over the past couple of years.”
The bottom line: considering the extremely dovish language of the RBA’s June monetary policy statement and the negative economic factors at play, the rising housing market will likely not be enough to avoid rates hitting another all-time low this year.
The Signal Team