The Governor's statement that was released alongside the decision contained few changes this month. This was perhaps not surprising given that since the Board last met, the RBA has published its latest quarterly Statement on Monetary Policy including their economic forecasts and the Governor addressed the economic outlook in a speech.
In today's statement, commentary began by noting that there were indications that the trade tensions currently playing out were resulting in signs of a slowing in global trade activity, rather than being described as a source of uncertainty.
Financial conditions still remain expansionary, though it appears the Bank has noted the recent volatility in financial markets stating that "equity prices have declined and credit spreads have moved a little higher".
The Bank reaffirmed its forecasts as outlined in the Statement on Monetary Policy for economic growth of 3.5% in 2018 and 2019 ahead of a slowing in 2020 from reduced resources exports. Growth is expected to be driven by rising non-mining business investment and an ongoing pipeline of major public infrastructure projects. The outlook for household consumption remains the key uncertainty given the persistence of low income growth, high debt levels, and declining property prices.
Regarding declining property prices, the Bank kept with the line that "conditions in the Sydney and Melbourne housing markets have continued to ease". However, new in this statement was that "credit conditions for some borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend". On the demand side, the Bank continues to note slowing activity from investors, but also now assesses this to be occurring in the owner-occupier segment noting that "growth in credit extended to owner-occupiers has eased to an annualised pace of 5-6 per cent".
In line with recent commentary, the Bank maintains a positive outlook for labour market conditions. It notes that the unemployment rate is at a six-year low of 5% and expects a further reduction given its expectation for above-trend economic growth for the next couple of years. However, stronger wages growth is still only expected to occur gradually. Matching with this assessment, inflation forecasts also point to an expected gradual rise in 2019 and 2020.
The next RBA Board meeting is scheduled for the 5th February 2019.
