By Greg Peel
At today's monetary policy meeting the board decided to cut the RBA overnight cash rate by 25 basis points to 3.25%, having last cut to 3.50% in June. To assess why the central bank made its decision its best to compare today's accompanying statement with the equivalent statement from last month.
Today RBA governor Glenn Stevens noted that estimates for global GDP are being "edged down," while last month he noted assessments that global GDP will grow no more than average pace. Last month Chinese growth was considered to be "reasonably robust" albeit below the pace of previous years, whereas this month "Growth in China has slowed, and uncertainty about near-term prospects is greater than it was some months ago".
Last month the RBA acknowledged some commodity prices had "fallen sharply" and that the terms of trade had peaked and declined, albeit to a level that is still historically high. This month it was acknowledged key commodity prices remain significantly lower despite a bit of a bounce recently (ie iron ore), but Stevens specifically noted the terms of trade are down 10% from last year's peak and will probably decline further, though they will "remain historically high".
Last month the RBA made no mention of the Australian housing market, but this month: "Investment in dwellings has remained subdued, though there have been some tentative signs of improvement, while non-residential building investment has also remained weak".
This month and last, "very large increases in capital spending in the resources sector" were noted. However this moth it was also suggested that: "Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur."
Last month it was suggested that the labour market was showing "moderate growth," and while this month saw a reiteration, the observation was added that: "The Bank's assessment, though, is that the labour market has generally softened somewhat in recent months". And with regard to inflation, "Moderate labour market conditions should work to contain pressure on labour costs in sectors other than those directly affected by the current strength in resources".