AU Monetary Policy Meeting Minutes

The Board began its discussions by noting that central banks in most advanced economies had cut policy rates over prior months as inflationary pressures had eased, and many had signalled further cuts. Despite this, monetary policy remained more restrictive in most peer economies than in Australia. Compared with views at the time of the previous meeting, market participants expected a slightly slower pace of rate cuts in the United States but a somewhat faster pace of cuts in the euro area. The central banks that had cut rates most ...

Members began their discussion by noting that the central forecast for global economic growth had not changed significantly over the prior three months. Average GDP growth for Australia’s major trading partners was expected to be moderate. Inflation had declined to be close to targets across most advanced economies, and many central banks had reduced the extent of policy restrictiveness as their attention began to shift to downside risks to activity, labour markets and inflation. Output growth in China had been weak recently, but the outlook had been upgraded following the announcement of a range of policy stimulus measures by Chinese authorities. This stimulus had also reduced some of the downside risks to growth in China, which members had discussed at previous meetings, though other downside risks remained. Financial asset prices in China had increased sharply in response to the announcement of the stimulus package. At the same time, the property market in China and property developers’ balance sheets remained very weak. Along with weaker real income growth, this was weighing on the confidence of households in China and on housing credit growth there. Members considered various channels through which economic stimulus in China could support the Australian economy. They concluded that the implications for Australia could be more modest than in the past because the capacity of the mining sector to increase Australia’s volume of mineral exports was limited. Moreover, it was unlikely that the sector would invest as heavily to expand this capacity as it had in the past, and the gains from any rise in the terms of trade were expected for the most part to be saved. post: RBA: FUTURE CASH RATE CHANGES CANNOT BE RULED OUT post: RBA WARNS OF POSSIBLE RATE HIKE IF POLICY NOT AS RESTRICTIVE AS ASSUMED post: RBA: POLICY TO REMAIN RESTRICTIVE UNTIL CONFIDENT ON CPI post: RBA SEES INFLATION NOT MEETING TARGET UNTIL 2026

Members began their discussion by noting that the economic data received since the previous meeting had been broadly in line with the staff’s expectations. Recent data on inflation had been consistent with a further gradual easing in underlying inflationary pressures. Looking ahead, monthly CPI data for August – to be released the day after the meeting – were expected to show a sharp decline in headline inflation, partly because of federal and state government cost-of-living relief. But underlying inflation was expected to remain above target. Inflation for some components had remained high and persistent, but the easing in the rate of growth in advertised rents over the preceding three months was expected to feed through gradually to lower rent inflation in the CPI. Growth in GDP in the June quarter had been in line with the staff’s expectations. However, the composition of that growth suggested somewhat less underlying momentum in aggregate demand than the staff had assumed. Notably, household consumption had been significantly weaker than expected, while the offsetting stronger-than-expected outcomes were in components that tended to be more volatile from quarter to quarter. Members observed that weak growth in output was closing the gap between aggregate demand and the economy’s estimated supply capacity, but that the two were not yet aligned. Members discussed the implications of the weaker-than-expected outcome for household consumption in the June quarter. This was seen to have reflected a combination of a genuine slowing in momentum and the unwinding of one-off spending in the March quarter. Bank transaction data suggested that the rece post: RBA POLICY MUST REMAIN RESTRICTIVE UNTIL CONFIDENT ON PRICES post: RBA SEES POTENTIAL DELAY IN CONSUMPTION PICKUP FROM EARLY DATA post: RBA VIGILANT TO INFLATION RISKS, CPI GOAL TOP PRIORITY

Members began their discussion by considering developments in aggregate demand. Domestic demand had been a little stronger in early 2024 than had been expected in May, driven by household and public consumption. That said, household consumption growth remained well below pre-pandemic averages, even after the upward revisions to consumption from mid-2022 to the end of 2023, as discussed at the June meeting. The upside surprise in domestic demand had also occurred alongside robust growth in imports, leaving GDP growth somewhat lower ...

Members began their discussion of international economic developments by noting that recent data had confirmed that output growth in most advanced economies had troughed and that upside risks might be crystallising in some regions. Forecasters had revised up their expectations for growth in advanced economies for the current year, reflecting stronger-than-expected data for the March quarter amid improving global business sentiment. Nonetheless, restrictive monetary policy was still weighing on demand in most advanced economies and ...