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RBA to start hiking rates in May 2015 - ANZ

FXStreet (Bali) - Felicity Emmett, Senior Economist at ANZ, shares his take on today's RBA minutes, concluding that they remain with their call for the RBA to stay on hold until May next year, after which time they will gradually increase the cash rate by 100bps over 2015.

Key Quotes

"Overall, today’s minutes continue to suggest that the RBA remains comfortably on hold, with the minutes repeating the message that “the most prudent course was likely to be a period of stability in interest rates”. However, the two key messages that we would take away from today’s minutes are that the Bank is becoming more uneasy about the pace of house price growth in Australia, and more concerned about the potential for housing market weakness in China to spill over into broader activity."

"On China, the minutes suggested that the Board’s concerns over the Chinese property market had intensified. Members noted that weak conditions in the Chinese residential property market had the potential to spill over into activity and the financial system – posing a downside risk to growth. And while they acknowledge that authorities have the capacity to ease policy, that could undermine the sustainability of lending growth."

"The other important development in the minutes was the Board’s heightened concerned over Australian property prices. Members noted that house prices were now growing “at a rapid pace” and in a preview of the Bank’s upcoming Financial Stability Review (due for release on 24 September) noted that “additional speculative demand could amplify the property price cycle and increase the potential for property prices to fall later”, potentially posing risks to macroeconomic stability. We expect that the Bank’s increasingly vocal concern over house price growth will prompt further discussion about the potential for the introduction of macroprudential controls in Australia, although to date the Bank’s enthusiasm for these has been lukewarm. On that front, though, the minutes noted that members were briefed on APRA’s recent activity, with our understanding that APRA had recently ramped up its presence “on the ground” with the banks."

"From our perspective, we continue to expect that the Bank will stay on hold until May next year, after which time they will gradually increase the cash rate by 100bps over 2015."

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