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The minutes from the Reserve Bank of Australia’s December board meeting reveal a continued easing bias, with the ‘uncomfortably high’ dollar remaining a concern.
The minutes acknowledge the impact of existing monetary policy, particularly on the housing market, while affirming the decrease in the Australian dollar has not yet satisfied the board.
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“There had been further signs of the stimulatory effects of low interest rates, most notably in the housing market, and additional effects were still likely to be coming through. At the same time, inflation remained within the target,” the minutes read.
“While the exchange rate had depreciated over the month, members agreed that it remained uncomfortably high and a lower level would likely be needed to achieve balanced growth in the economy.”
In line with its previous three meetings, the minutes noted the board has chosen to hold the cash rate steady while monitoring the ongoing effects of current policy.
“The Board's judgement remained that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects of earlier reductions, but not to close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target,” the minutes stated.
Westpac chief economist Bill Evans said the commentary on the housing and finance markets is more upbeat than in November.
“House prices are described as growing at 15 per cent, and while Sydney has the largest increases, other cities have also picked up. Loan approvals are also described as having “increased significantly in September and October”.
Westpac has revised its interest rate forecast for 2014, pushing back the date of the first cut from February to May, with the second cut in August.
“The commentary in these minutes is certainly markedly upbeat about housing and supports our view that no early rate cut can be expected. The minutes are also consistent with our expectation that the Bank would prefer to provide further stimulus through jawboning down the currency,” Mr Evans said.
