RBA – the Claytons easing bias

Here is this month’s regular Q&A column contributed by Greg McKenna, the Markets & Economics Correspondent for Business Insider Australia.


The Reserve Bank released its latest quarterly statement on monetary policy (SoMP) in early February. The document makes clear that the RBA was not expecting the strength in employment that Australia has experienced since the last SoMP in November. That’s a very positive shock in what has increasing become a clouded outlook in 2016.

The bank also highlights that the combination of monetary policy and the lower Australian dollar continue to work together to support the economy (our emphasis):

The Reserve Bank Board reduced the cash rate by 50 basis points in the first half of 2015. The available data suggest that the accommodative stance of monetary policy and the depreciation of the exchange rate since 2013 have supported growth and assisted the rebalancing of economic activity towards non-resource sectors of the economy. This process has been particularly apparent in the labour market. Employment growth over 2015 was stronger than was expected a year ago and the unemployment rate fell by more than had been expected. Despite this, output growth has remained below average.

That doesn’t mean their isn’t “scope for easier policy, should that be appropriate to lend support to demand” the bank said. But it made very clear the preconditions for such an easing when they said, both in governor’s statement and the SoMP that they will assess any new information, “to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and local demand.”

Portends is an interesting word for the RBA to use. yet they still hold a positive outlook for the local economy noting that:

Growth in Australia’s major trading partners is forecast to remain around its current rate over the next two years. The US and euro area economies are expected to grow at an above-trend pace, while growth in the Asian region is expected to ease a little further, driven by a further moderation in Chinese growth.

The RBA noted the housing market has started to show signs of cooling in price terms but that foreign buyers would continue to support the construction phase of the current building boom. As a result it’s clear that the RBA retains great comfort with current settings and the economy would need to diverge materially from current forecasts for them to act on their easing bias.


Greg McKenna is an economist, trader and adviser. He runs his own consultancy and writes for Business Insider Australia. You can find him on Twitter @gregorymckenna or at www.gregmckenna.com.au


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