RBA August Board Minutes: Balance sheet risks feature - ANZ

David Plank, Head of Australian Economics at ANZ explains that they think there are two key points to take from the Minutes of RBA’s August Board meeting. First, concerns around household debt are included in the final paragraph/sentence of the Minutes and Second, the Bank seems less confident that house price growth is moderating to a satisfactory degree, he further adds. 

Key Quotes

“While the RBA is clearly on hold at present, with spare capacity in the labour market only slowly reducing and “ongoing low wage growth and the high level of debt..rais(ing) the possibility that consumption growth could be lower than forecast”, we think the changes to the Minutes do elevate the focus on the financial stability in a way that raises the risk of policy action at some point. If confidence around the achievement of the inflation and employment objectives lifts then the issue of financial stability could be enough to push the Bank into moving earlier than might otherwise be the case.”

“Detail

• On the first point the RBA explicitly cites “the need to balance the risk associated with high household debt in a low-inflation environment”. This is an interesting change from the last couple of Minutes which had references along the lines that “developments in the labour and housing market continued to warrant careful monitoring.” In our view, this continues the RBA’s evolution toward a three-pronged objective function: inflation, employment and financial stability. 
• We don’t think that this evolution has reached the point where the RBA would move interest rates to better manage the financial stability objective at the expense of the other two. We do think, however, that we are closer to the point where the RBA might move interest rates for financial stability reasons if it had a high degree of confidence that the first two objectives were being achieved.
• On the second point, the wording around the housing market has changed in a manner that suggests the Bank is less confident that price growth is moderating to a satisfactory degree. It now says that, “while there were signs that conditions in the Sydney and Melbourne markets had eased somewhat, housing price growth in these two cities had remained relatively strong.” What’s more and related to the concern about household debt, “overall housing credit growth has continued to outpace the relatively slow growth in household incomes.” The reference in the July Minutes to it being too early to tell whether the APRA measures on housing “have had their full effect” is no longer present.”