By Michael Witts

What were the main points of discussion at today’s meeting?

The statement today was broadly unchanged from earlier RBA statements. A new element in this statement was reference to the RBA’s forecasts suggesting that the economy is set to grow at close to its potential rate over the next year, before gradually strengthening. Against this background, inflation is expected to pick up gradually over the next two years.

The RBA again referenced that they view their inflation target as a through the cycle measure rather than a target that should be met at all times.

This suggests that the RBA may well be on hold for an extended period, and indeed we may have seen the last of the cuts in the cash rate from the RBA.

Has the August rate cut had any effect?

Usually, interest rate changes take approximately six months to work through the economy, so it is too early to tell if the August rate cut has had a meaningful impact on the economy as a whole.

The May rate cut is working its way through the system and we are starting to see stronger domestic data. Importantly, consumer and business confidence has also moved higher.

Certainly, the exchange rate has not weakened in response to the August cut. As noted by the RBA, a further appreciation of the exchange rate could complicate the outlook for the domestic economy.

What is the RBA’s view on property prices in Australia? And concerns about an apartment oversupply?

The RBA makes the point that there are multiple housing markets within a given city and or state, and as such, they note that the rate of price increases has slowed in some markets, while in other markets, prices have been rising briskly over the past few months.

The RBA again highlighted the potential oversupply of apartments, especially on the eastern seaboard, as an area that warrants close attention. Reflecting the strong role of investors in the markets, rent inflation has been the slowest for several decades.

Did the RBA note the US Presidential Election? What effect could this have on the RBA/Australian economy?

The RBA rarely discusses political developments either in Australia or offshore.

The US elections have attracted significant global attention, and whenever there is a change of leader, there is scope for uncertainty in both financial markets and the broader economy, in this case the US.

Drawing from the Brexit experience, markets are more adept at dealing with surprise outcomes and increased uncertainty. 

Regardless of the outcome of the US election, it is unlikely this would have a significant impact in the short term.

What is the RBA’s view on the Australian economy? Is this different to ING Direct’s view? What is the RBA’s view on the global economy and the Aussie dollar? Is this different to ING Direct’s view?

It is very clear that the Australian economy is well along the transition path that has been highlighted continually over the past two years.

Although the exchange rate is well off the recent lows, the lower level of the exchange rate, when considered from a longer term viewpoint, has added momentum to the economy.

The strong performance from the construction sector is providing a solid underpinning for the broader economy. Infrastructure spending is providing a growth dividend for the future.

The recent spike in commodity prices will improve the terms of trade and provide a boost to the income measure of GDP. This has been lagging over recent years as commodity prices have sharply fallen.

It is clear that a lower AUD will aid the domestic economy, however, the improvement in the terms of trade, if sustained, will support the AUD.

When eventually the US Federal Reserve increases interest rates, there is an expectation that the AUD will move lower, however, given this potential is broadly anticipated there may be disappointment at the end of the day.

Global growth could still be considerably stronger, although the US and China appear to be continuing to be expanding at a reasonable pace.

The RBA’s view on both the Australian and global economy appears to be consistent with most observers. 

As noted previously, the RBA is looking for domestic inflation to progressively increase over the next year or two as the economy grows at an increasing pace. This would suggest that the RBA will be on hold for an extended period.