RBA Minutes May 2015 (edited) - quick version

Fill the gaps in this heavily edited version of the RBA Minutes of its May 2015 Board Meeting. A quick exercise to familiarise yourself with the forces impacting on the economy in 2015 and how monetary policy decisions are made

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Considerations for Monetary Policy

Members assessed that the outlook for global growth had been revised only marginally lower in the near term and would continue to be supported by sy m policies and the low price of . They noted that growth appeared to have slowed in China and that the weakness in the Chinese market continued to represent a significant risk both for Chinese growth and demand for construction-related . Lower growth in the demand for commodities had contributed to the lower prices of Australia's key commodity since the beginning of the year. As a result, Australia's of were expected to decline a little more than was forecast three months ago.

In their discussion of the appropriate course for policy, members noted the revised staff forecasts for the domestic economy. Although the recent flow of data had been generally positive, there had also been indications that future cl spending in both the mining and non-mining sectors would be weaker than expected. Overall, compared with the previous set of forecasts, growth was now expected to take longer to strengthen and the was likely to remain elevated for longer. This change, and generally subdued growth of domestic costs, including , implied that was expected to be slightly lower than in earlier forecasts though still consistent with the . On the face of it, this meant that it would be appropriate to consider an of monetary policy.

Members also discussed the potential risk that low levels of could foster imbalances in the market. While concerned about the very strong pace of growth of housing prices in , and observing that conditions in Melbourne were strong, members saw much more muted trends in other capital cities. As at previous meetings, they acknowledged the risks that could accompany a sustained increase in le from already high levels, should that occur, and that the e effects of lower interest rates could be less than in the past. On the data available for this meeting, however, it did not appear that the growth of housing c, either for investment or owner-occupancy purposes, had been increasing over recent months. The Bank would continue to work with other regulators to assess and contain the risks arising from the housing market.

More broadly, members noted that the low levels of interest rates were helping to support in the face of a number of persistent headwinds and that a further reduction in the would provide some additional support to economic activity by reinforcing recent encouraging trends in household demand. In turn, this would support non-mining business insofar as demand conditions were the main factor constraining these decisions. Such outcomes would be expected ultimately to lead to stronger market conditions. Members also noted that further of the rate seemed to be both likely and necessary, particularly given the significant declines in key prices, and that such an outcome would help to achieve more bd growth in the economy and assist with the transition to a lower .

Members discussed the timing of any interest rate adjustment. They could see cases both for moving at this meeting or at the subsequent meeting. The latter course would bring the advantage of additional information on the economy, including details of the forthcoming Commonwealth . On the other hand, with the revised staff forecasts scheduled to be released a few days after the meeting, members acknowledged that the challenges of communication might be more effectively met with a reduction in the at this meeting.

On balance, taking all these factors into account, the Board decided that the best course was to monetary policy further at this meeting. Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of . Members did not see this as limiting the Board's scope for any action that might be appropriate at future meetings.
The Decision

The Board decided to lower the cash rate by 25 to 2.0 per cent, effective 6 May.