Update on RBA's monetary policy framework - ANZ

The ANZ Research Team notes that under Philip Lowe as the new RBA Governor, chances of another rate cut are a little lower, judging by the latest Statement on the Conduct of Monetary Policy, published earlier on Monday.

Key Quotes

Following the appointment of Philip Lowe as the new RBA Governor, yesterday the Treasurer and the Governor released a new Statement on the Conduct of Monetary Policy. The statement sets out the framework for monetary policy with clearly stated objectives. Since the last Statement in October 2013, there have been a number of changes that we think could potentially be significant.

Most of the changes point to a more flexible interpretation of the target: the statement now emphasises not just low, but “low and stable” inflation; the target is specifically referred to as a “flexible medium-term inflation target”, and the time frame has been changed to “over time” rather than “over the cycle”.

Underlining this more flexible strategy, the statement notes that this approach will allow the Bank to set policy so as to achieve its broader objectives, “including financial stability”.

While we would not want to overstate the implications for near-term monetary policy, our interpretation of this is that the RBA will have greater capacity to take into account financial stability issues such as house price growth when deliberating on policy.

This suggests to us that the chances of another rate cut are a little lower. We get an update on the new Governor’s thinking on Thursday at 10:00am AEST when he appears before the House of Representatives’ Standing Committee on Economics.