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Oct 21 2014, 12.10pm GMT


The hawkish nature of the Reserve Bank of Australia’s minutes picked the AUD up by 0.4 percent.

Presented in the October minutes of the RBA, the data for September set a prudent course, saying, “Members considered that the most prudent course was likely to be a period of stability in interest rates…unchanged at 2.5 per cent.”

Synopsis of Minutes of the Monetary Policy Meeting of the Reserve Bank Board

International Economic Conditions – comments on Australia's major trading partners & export markets:

CHINA - some indicators of economic conditions had softened; flow of overall non-bank financing eased due to China’s housing slump; target for 2014 employment growth already close to being achieved.

JAPAN - economic activity picked up only a little; prospects for growth remained unclear; rest of East Asia growth in output below its decade average; East Asian trade grown as a share of world trade.

US – growing above trend; investment up; labour market improving; unemployment rate had continued to decline.

EURO ZONE - little change in output; inflation well below the ECB target; further stimulatory measures announced.

IRON ORE - prices had declined further over the past month to lowest level since September 2009; increased Australian and global supply; softening in the growth of Chinese demand for steel.

Domestic Economic Conditions - figures show:

  • Increase in real GDP of 0.5% in the quarter and approx 3% over the year.
  • A decline in resource exports.
  • Consumption had grown faster than real disposable income, resulting in a further decline in the savings ratio.
  • Housing investment up 8%, strong conditions in the established housing market.
  • Growth of investor credit increased close to 10%.
  • Mining down over course of 2014/15.
  • Non-mining investment stagnant.
  • Slow wage growth outcomes.
  • Labour market conditions remained subdued.

Financial Markets – key points

  • Central banks were the main focus of attention in September.
  • Volatility picked up a little from very low levels, predominantly in currency markets.
  • FED rates to remain unchanged for a ‘considerable time’.
  • ECB reduced by a further 10 basis points both its policy rate, to 5 basis points, and its deposit rate, to -20 basis points, in September.
  • Sizeable movements in exchange rates followed, USD appreciating across the board, including against the AUD.
  • AUD had depreciated by 4 per cent in trade-weighted terms over September through weaker-than-expected Chinese economic data and declines in key commodity prices.
  • Share prices in developed economies declined over last month, except in Japan due to sizeable depreciation of the yen.
  • Lending rates in Australia continued to edge down.
  • Cash rate would be unchanged over the following 12 months.

Considerations for Monetary Policy – key points

  • Domestic economy had grown moderately in the June quarter, following a strong March quarter result.
  • Strong growth in dwelling investment.
  • Commodity prices, in particular iron ore prices, had declined.
  • Australian dollar had depreciated.
  • Conditions in the labour market remained subdued.
  • Modest employment growth expected in the months ahead.
  • Wage growth to remain slow to help maintain inflation consistent with the target even with lower levels of the exchange rate.
  • Accommodative monetary policy was expected to support demand and help growth to strengthen over time.

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