RBA December 2012 Meeting Minutes point to subdued investment and labour market


The minutes for the December 4 Board meeting give three key reasons why the Board decided to reduce the cash rate by a further 25bps.

  1. The labour market pointed to an easing in wages growth and a softening labour market. The wages growth slowdown was most pronounced in household services and retail;
  2. The Board noted further confirmation that the peak in the resource sector investment was near. This was partly gleaned from the ABS capital expenditure survey which printed in late November and was supported by the Bank’s own liaison and other information;
  3. The short term outlook for non resource investment remained subdued. This was supported both by the capital expenditure survey and the Bank’s own liaison which suggested that some firms were investing only to cover the depreciation of existing capital. It was also noted that the non residential construction industry was concerned about a modest pipeline of work once the current resource projects were completed.Source; Westpac Economics

 “We remain comfortable with our view that there will be another rate cut in February or March – this view that rates would reach 2.75% has been held by Westpac since May this year. The Board is signalling in these minutes that every move will be carefully debated given the low level of rates. However, with a further two months of data to assess the key issues around the labour market; wages; and non-mining investment the lack of momentum which we expect during this period will present a strong case for another cut. As noted in the minutes, that cut would probably still have the variable mortgage rate around 50bps above the low point in 2009. That observation alone opens the door for rates to go even lower.”