A couple of bank assessements of the minutes
(in brief, bolding is mine)
Westpac:
- The minutes are not quite as upbeat as the Governor's statement indicated. The improved labour market conditions are recognised but clearly qualified by an expected slow response from wages and ongoing spare capacity.
- Improving prospects for non-mining investment are noted, but the peak in the residential construction cycle has been reached, and prospects for non-residential investment are mixed.
- The easing of conditions in the housing market, especially in Sydney, are noted, but the qualification that the Melbourne market remains strong is added.
- The policy conundrum of rising household debt in an environment of low inflation is emphasised. While, the commentary notes that financial markets are giving "some expectation of an increase in the cash rate by mid-2018", there is no signal in these minutes to suggest that the Board sees any urgency around interest rates.
- Westpac expects that concerns with weak income growth weighing on consumer spending and eventually the jobs market will dominate the policy debate in 2018.
- The sustained application of macro-prudential policies is likely to continue to ease conditions in housing markets precluding any need for the Bank to raise rates next year.
CBA:
- We retain our long held view that policy tightening won't arrive until late 2018. But we also acknowledge that the risk has shifted to a rate hike before then because of the remarkable improvement in the labour market. Employment growth has been phenomenal and there has been a gradual tightening in the labour market.
- From a monetary policy perspective, it is about what this improvement means for wages and inflation. And how the RBA responds. In our view, while wages growth should step up in Q3, we don't expect the underlying pulse to materially lift given spare capacity in the labour market remains elevated. In addition, there are still risks around the consumer given a declining savings rate has been required to generate modest consumption growth. Finally, the AUD looks stuck at around 80 US cents - any further appreciation because of movements in interest rate differentials is undesirable.
- With the housing market cooling, as evidenced by a range of indicators, and residential construction to become a drag on growth from here, the risks around a hike in line with market pricing appear asymmetric. There is a lot to like about the recent data flow, but there is a still a fragility to economic momentum that will not dissipate until non-mining business investment takes off. As such, policy on hold until late 2018 continues to seem the most probable scenario.
- The near term focus from a monetary policy perspective turns to Friday when the RBA Governor Lowe delivers a speech titled, " The Next Chapter. The heading implies a forward looking perspective from Dr Lowe which means it's likely to be particularly relevant to market participants.
