By Michael Witts

What did the Reserve Bank of Australia (RBA) say in yesterday's meeting?

The RBA kept the cash rate unchanged at its meeting yesterday. Although this was widely anticipated it was perhaps a closer call than expected.

The commentary was largely in line with the previous month with any differences were largely restricted to adjectives here and there.  The key point from the RBA was again that equity and debt markets have been volatile over the past few months, however the jury is yet to return in terms of the lasting impact on the real sectors of the economy. In other words, what does this mean for employment markets and consumer demand?

The RBA will retain a watching brief over the economy for early signs of the lasting impact; again re-iterating that they have the capacity via the low inflation environment to provide further stimulus to the economy to support domestic demand should that be required. 

Has anything in this month’s statement changed compared with last month’s?

The statements are largely the same, with minimal differences month on month. 

Is the RBA worried about the housing market and banks?

The RBA has indicated they are comfortable that the action taken by APRA is working effectively to emphasise prudent lending practices and thereby contain real and perceived risks in the housing market. The bias in new lending is more towards owner occupiers as opposed to investors; a welcome development. The RBA is content that the heat has been taken out of house prices.

The RBA commented that against the background of increased market volatility, credit spreads have been under pressure and this has translated into higher bank funding costs. This has yet to translate into market pricing.

The credit quality of the Australian banks’ mortgage portfolios is very strong. Arrears levels across the market remain at low levels and the majority of borrowers are well ahead of their minimum repayments. This buffer level has been steadily increasing over time.

What is ING Direct’s view on this?

At ING Direct we are focussed on assisting Australians to own their homes, in this regard our lending focussed on affordability first and foremost. 

ING Direct benefits from a diverse range of funding sources with the clear majority of the funding accessed via retail markets.  The credit quality of ING Direct’s portfolio remains amongst the strongest in the Australian market.

What is the view on the Australian economy, global economy and the Aussie dollar?

Our view is in line with the RBA, in that it is too early to be certain what the lasting impact of the recent market volatility will be on either the global or local economy. As was recently noted by the Treasurer, Australia remains the envy of the G20 group of countries.

The RBA has the capacity to cushion the impact of adverse developments on the domestic economy via further reduction in the cash rate.

The RBA would like to see the AUD lower and is expecting this development following the decrease in the terms of trade over recent years. The foreign exchange markets are being driven by engineered currency devaluations across the globe as various countries attempt to boost their respective economies.