SMM5, 21 March: in the morning, the RBA released the minutes of its monetary policy meeting in May, which once again mentioned the possibility of cutting interest rates, deepening the market's expectations of a rate cut in June, with the Australian dollar falling nearly 20:00 against the US dollar AUD/USD in the short term.
Referring to China, the minutes said the sharp slowdown in global trade was linked to a slowdown in China's economic growth. The decline in China's imports is largely cross-regional, although the sharp drop in trade with the United States suggests that trade transfers caused by new tariffs are also a factor. China's growth is expected to slow gradually over the forecast period to mid-2021. This is expected to continue to weigh on external demand in trade-intensive economies in East Asia and the eurozone; recent data on export orders in East Asia have been curbed.
Referring to the Australian economy, the minutes said growth was curbed in the second half of 2018, with household consumption indicators showing that quarterly growth remained subdued in March. In addition, demand for new housing construction is expected to remain weak. These factors are the main factors for the downward revision of domestic growth prospects in the short term. The housing market remained weak last month. Sydney's rental vacancy rate has risen to its highest level in 15 years, and house prices in mature markets continue to fall. Forecasts for the labour market suggest that there will be some spare capacity in the labour market throughout the forecast period, although there is uncertainty about the rate of decline in spare capacity and how progress affects wage pressures.
The minutes highlighted that, as at the previous meeting, members had discussed scenarios where inflation was no longer rising and unemployment was rising, recognizing that it might be appropriate to lower cash interest rates in such circumstances. Given the high level of household debt and the adjustment in the housing market, interest rate cuts are likely to have less impact on the economy than in the past. Nevertheless, lower interest rates are expected to support the economy through exchange rate depreciation and reduced interest payments required for borrowing, thereby freeing up cash for other expenditures.
It is worth noting that in the minutes of the meeting, the RBA deleted the phrase "there is no strong basis for recent policy adjustments", indicating a further increase in the probability of interest rate cuts.
On the 8th of this month, New Zealand announced a 25 basis point interest rate cut, becoming the first developed country to be unable to withstand the rate cut. As an economically closely connected neighbor of Oceania, it is facing the same global financial environment and the external pressure brought about by the Chinese economy. In the face of similar internal pressure from falling economic growth, a slowing property market and lower inflation than the target range, Australia unexpectedly left interest rates unchanged, mainly because of the belief that the labour market remained strong. However, the latest figures show that Australia's unemployment rate reached an eight-month high of 5.2% in April, while inflation fell to 1.3% in the first quarter, fully in line with the fact that inflation is no longer rising and unemployment is rising. Therefore, according to the information disclosed in the minutes of the meeting, the interest rate rise in June is already a highly probable event. In addition, RBA Governor Lowe said bluntly in his speech that he was considering a rate cut in June. I believe Australia is really not far from a rate cut.