The Australian dollar declined today after the Reserve Bank of Australia (RBA) released the monetary policy minutes for the past meeting. The minutes showed that the bank was increasingly concerned about the slowing global economy, the low rate of inflation, and the challenging real estate market.
On the global economy, the growth in the main Australian trading countries had continued being above trend. They however pointed out that this growth started to slow in the second half of the year. This slowdown was blamed on the slowdown in China amid a trade conflict between the country and the United States. The two countries are now negotiating a deal that will likely iron out the key issues between the two countries. In Europe, the minutes showed that officials were concerned about tariffs coming from the United States. These tariffs may affect the economies of European countries, which depend mostly on imports.
On the Australian economy, the officials said that the economy had underperformed in 2018. The real GDP of 0.3% in the quarter and the 2.8% in the year was below the expectations. The economy had seen a number of downward revisions. In 2019, the economy is expected to grow by about 3%, which may be supported by an accommodative monetary spending and the ongoing public spending and business investments. This growth may decline to 2.75% in 2020 mostly because of the Liquefied Natural Gas output, which may reach the target this year.
The officials were concerned with the real estate industry, which is experiencing a drop. This comes after a massive growth in the industry especially in the major cities of Sydney and Australia. The falling prices has seen the values of most homes decrease significantly, which has affected the net-worth of the buyers. Real estate companies have also been left with increased inventories.
Another challenge highlighted in the minutes was in the agricultural industry. In the third quarter, farm output declined by 8%. This subtracted about 0.25% from the year-end GDP. The country is currently going through a drought that may see production levels slow down.
On the labor market, the officials noted that it is tightening. The unemployment rate is currently at 5%, which is the lowest level since 2011. This figure was much lower than what was expected. The labor market was specifically stronger in New South Wales and Victoria, where the rates have fallen to between 4% and 4.5%. Over the next few years, the unemployment rate is expected to decline to between 4% and 4.5%.
On inflation, the numbers have continued to be lower. This has been caused mostly by the increased competition in the retail sector, which has led to more discounts. The low oil prices have also contributed to the low rate of inflation. Also, the falling house prices has led to a slowdown in rental prices. In conclusion, the officials said that:
Given that further progress in reducing unemployment and lifting inflation was a reasonable expectation, members agreed that there was not a strong case for a near-term adjustment in monetary policy. Rather, they assessed that it would be appropriate to hold the cash rate steady and for the Bank to be a source of stability and confidence while further progress unfolds. Members judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.