RBA minutes: Prospects for growth would be improved by easing monetary policy

The minutes of the August RBA meeting when interest rates were cut to 1.5% record lows from 1.75% have been released.

As the RBA minutes notes: "Taking all these considerations into account, the Board, on balance, judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting."

Reuters with the key headlines

At August meeting judged prospects for growth, inflation would be improved by easing

Room for stronger economic growth given inflation to remain low for some time

Board saw diminished risks from housing debt, rising home prices

House prices, auction rates, mortgage lending pointed to cooling market

Rising A$ could complicate transition from mining boom

GDP growth likely to be more modest in Q2, after strong Q1

Considerable uncertainty about momentum in labour market, inflation outlook

Forward indicators of jobs growth pointed to steady unemployment in coming months

Unemployment expected to dip only slowly to 5.5 pct by 2018, leave slack in market

Pipeline of home building at very high levels, risk of oversupply in some markets

Supply of new homes to keep rent inflation at low levels

China stimulus supporting growth there, but uncertainty over longer-term outlook

Reasonable chance of further stimulus globally impacting on currencies

Considerations for Monetary Policy

In considering the stance of monetary policy, members noted that GDP growth in Australia's major trading partners had remained slightly below average in the first half of 2016 and was expected to continue at around this pace in each year of the forecast period. This forecast was largely as had been expected three months earlier. Growth in China had continued to moderate, which was having noticeable effects on other economies with large trade exposures to China. Actions by the Chinese authorities were supporting the near-term growth outlook, but there was uncertainty about the underlying pace and composition of China's growth over the longer term. Growth in the advanced economies had been around or above potential and labour market conditions had continued to improve. Despite this, inflation had remained below most central banks' targets. Consequently, monetary policy had continued to be highly accommodative in most economies and there was a reasonable likelihood of further stimulus by a number of the major central banks.

Commodity prices overall had risen since the previous meeting and the Australian dollar exchange rate had appreciated a little since earlier in the year. Changes to expectations about central banks' policies continued to have an important influence on global exchange rate developments. The terms of trade for Australia were expected to be little changed over the forecast period, largely as had been previously forecast.

The latest CPI data for Australia had confirmed that inflation pressures were subdued, as had been expected when the previous forecasts were discussed in May. As such, the outlook for underlying inflation was little changed. Underlying inflation was expected to remain low for a time before picking up gradually as spare capacity in labour and many product markets diminished.

The outlook for Australian GDP growth and the unemployment rate had also been little changed since May. While GDP growth had been stronger than expected in the March quarter, reflecting unanticipated strength in resource export volumes, it was expected to have been more modest in the June quarter. Economic growth was expected to pick up to be above estimates of potential by mid 2017. Employment growth was expected to increase as a consequence and the unemployment rate was expected to fall marginally over the forecast period. Low interest rates and the depreciation of the Australian dollar since 2013 were expected to continue to support the necessary adjustments in the economy following the end of the mining investment boom, though an appreciating exchange rate could complicate this.

In coming to their policy decision, members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time. They also observed that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates. At the same time, members noted that indicators for the established housing market in the first half of 2016 had pointed to an easing in conditions, including lower housing credit growth and an easing in housing price pressures. These developments were consistent with the tightening in lending standards towards the end of 2015 and decline in turnover in the housing market to low levels. This suggested that the risks associated with rising household sector leverage and rapid gains in housing prices had diminished.