By Michael Witts

What were the key points in the RBA statement?

As the Governor of the RBA indicated last week, markets should “chill out” over summer and he will see them in February.  Basically the economy is largely going according to script, with no surprises.

The comments from the RBA were largely a carbon copy of last month with the only additional comments referencing that lending to investors in the housing market had eased.

What has changed since last month's statement?

Broadly not a significant amount.

The RBA is increasingly confident that the US Federal Reserve will move to increase rates in the period ahead, potentially as early as mid-December.

The RBA highlights that the transformation currently underway is gaining momentum, moving away from the resources sector towards those parts of the economy that are more sensitive to the exchange rate. In this regard tourism and the education sector are important contributors. This pick up is offsetting, to a large extent, the significant decline in capital spending in the mining sector.

Export data released earlier today confirms that these activities will make a significant contribution to the September GDP data, due to be released later this week.

The outlook for both prices and employment remain positive. Inflation is low and will remain low in the period ahead, while labour market conditions continue to be favourable.

The RBA is very confident that monetary policy remains accommodative to support growth. Lending to investors has slowed as the various changes made by APRA flow through into the market. Despite the slowdown in lending to investors, lending to the business sector has picked up.

The improvement in business demand for credit reflects the improved business sentiment apparent over the September and into the December Quarter.  This improvement is shared in the consumer space. 

What is the RBA’s view on the housing sector?

Overall the RBA is comfortable with the housing sector, particularly welcoming the decrease in investor activity driven by APRA’s focus on lending standards.  

However the housing market remains patchy; generally areas within 10kms of Sydney and Melbourne are well supported. Auction clearance rates continue to be under pressure, as the adjustment process of sellers’ expectations are slowly coming into line with buyers’ willingness to pay.

There is a high level of activity of borrowers seeking more attractive pricing options for their existing loans. This does not contribute to additional building and construction activity, rather it generates greater demand for loans from one bank at the expense of another bank.

What is the RBA’s view on the US Federal Reserve's monetary policy?

The RBA, together with the market, expect the US Federal Reserve to start increasing its policy rate over the period ahead, it is just a question of when that period will be. The FED’s next meeting is in mid-December with many observers expecting the Bank will tighten US policy conditions a notch. Given the ongoing strength in the US economy, a tightening of US rates will be a welcome development.

Against that background it is possible that the AUD could weaken in the face of a stronger USD. This will further assist in the transformation process.

What is ING Direct’s view on the Australian economy and the global economy in 2016?

Our view is that the RBA will be on hold for an extended period.  There seems to be little reason for the RBA to act in the near term; monetary policy is clearly accommodative, the transformation is working and the AUD is holding around recent lower levels, notwithstanding a spike in the past week or so.

The global economy is very much a story with many chapters. The US is going well and China is still strong, albeit at lower levels than in the recent past. However Europe is dragging its feet, with the prospect that a further asset buying program will be announced in the short term.

Can we expect to see the cash rate rise, fall or remain the same in 2016? What does the RBA expect for the economy in 2016?

We expect the RBA will be on hold for much of 2016, with perhaps some adjustment of the cash rate higher in the December quarter of 2016.

A key feature of 2016 will be the substantial rise in export volumes as the production phase of the resources boom continues to mature.

Inflation will remain subdued and wages are unlikely to increase substantially. Potentially the AUD could come under pressure, especially in the first half of 2016.