Reserve Bank of Australia board members are fretting that lending conditions could tighten further as the royal commission into the financial services sector continues, the minutes of its latest monetary policy meeting showed.
“Members discussed the release of the interim report of the royal commission,” the minutes of the last RBA board meeting revealed.
“While the regulators had already overseen a tightening of lending standards, and a degree of tightening of lending standards had been implemented by banks in anticipation of the commission’s findings, it was possible that banks could tighten lending conditions further given the issues raised in the report.”
“Members noted that it would be important to monitor the future supply of credit to ensure that economic activity continued to be appropriately supported.”
“The minutes of the Reserve Bank of Australia’s October meeting displayed the bank’s reasonably optimistic tone, but did warn that the influence of the royal commission on credit and housing generates some uncertainty,” said Paul Dales at Capital Economics.
“We agree and doubt that the RBA will be in a position to raise interest rates until late in 2020.”
The interim report from Commissioner Kenneth Hayne was released on September 28, days before the Reserve Bank of Australia met for its monthly interest rate meeting on October 2, and took aim at the banks and their business practices.
“Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?” Commissioner Hayne asked in the report.
Given the minutes of the last Reserve Bank meeting “the supply of credit to the Australian economy will be added on to the list of indicators to watch, as well as wages, inflation and the housing market,” Commonwealth Bank economist Belinda Allen said.
“The issue for the RBA and the interest-rate outlook is if the deflation in dwelling prices impacts consumer spending,” she added.
When making its cash rate call, the RBA board also noted that international trade developments “continued to be a source of uncertainty.” The US and China remain locked in an escalating trade dispute that so far has seen tariffs imposed on billions of dollars of goods.
It also pointed out that energy and bulk commodity prices “generally remained elevated” and had supported the country’s terms of trade while a weaker Australian dollar was “likely to have been helpful for domestic economic growth.”
The Reserve Bank said that, in its view, current policy settings will support growth in the economy while allowing the employment picture to strengthen and inflation to rise to the middle of its 2 to 3 per cent target range.
Progress on unemployment and inflation is likely to be gradual, however, the board members agreed, while concluding that there was “no strong case” for policy adjustment in the near term.
The cash rate has been at 1.5 per cent since August 2016 and RBA officials in the latest minutes gave no indication of a near-term change in their patient policy stance and said they “continue to agree that the next move in the cash rate was more likely to be an increase than a decrease”.
The Australian dollar was unmoved to fetch US71.4¢ in lunchtime trade.