Central Bank Views

RBA's Main Concerns Shifted to Housing Market From Employment

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RBA's minutes for the August meeting revealed that policymakers were optimistic over the global and domestic economies. However, they reiterated the warning of the strength of Australian dollar, noting that its appreciation would curb growth and inflation over time. The central bank signaled concerns over the housing market and household debt, while appeared more comfortable over the employment situation. AUDUSD recovered after the release of the minutes.

The central bank appeared less concerned over the job market. At noted in the minutes, 'wage growth had remained low but was still expected to increase a little as conditions in the labor market improved'. It added that 'recent strong employment growth would be likely to contribute to an increase in household disposable income, and therefore consumption growth, over the forecast period'. In June, Australia's unemployment rate stayed unchanged at 5.6%. Yet, the increase in the number of full time jobs (up +62K) unveiled that the employers are more confidence over the economic outlook. The participation rate also added + 0.1 percentage point to 65%.

On the housing market, RBA noted that the rising prices and household balance sheets 'warrant careful monitoring'. The minutes noted that while the conditions in top-tiered cities, such as Sydney and Melbourne, had eased, housing price growth in these cities had 'remained relatively strong'. Housing markets in other regions 'had been declining', though. It added that the 'overall housing credit growth had continued to outpace the relatively slow growth in household incomes'. Indeed, the latest data from CoreLogic suggested that home values increased, from a year ago, in Sydney, Melbourne, Brisbane and Adelaide in the week ended August 13, while Perth edged lower. Meanwhile, the number of homes taken to auction rose to 2 011, compared with 1 857 over the previous week, across the combined capital cities this week. This marked the largest number of auctions held since the last week of June 2017 and approximately one third higher compared with the same week a year ago.

The RBA forecast that the economy would soon be growing at an annual rate of +3%, assuming that there's no major change in the Australian dollar. The central bank added that 'This assumption was one source of uncertainty'. Policymakers went to warn of the Aussie's strength, suggesting that 'a further appreciation of the Australian dollar would be expected to result in a slower pick-up in inflation and economic activity than currently forecast'.