“Members noted that weak growth in household income continued to present a downside risk to consumer spending, and that a low appetite for risk could be constraining businesses’ willingness to invest,” the minutes said. “As part of their deliberations, members noted that the board had the ability to provide further stimulus to the economy, if required.
“The board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
The minutes also suggest the bank is not as upbeat about the state of the economy as the Morrison government in its mid-year budget update released on Monday. The update showed the government expecting unemployment to climb, jobs growth to slow, household consumption to quicken and wages to lift by 2.5 per cent through 2020-21.
But the minutes show the RBA’s feedback from the business sector points to ongoing slow wages growth and retail activity.
The concern about consumer spending was highlighted in the Commonwealth Bank’s monthly measure of household spending intentions, which showed only a minor lift through October and November. Those months included the RBA’s latest interest rate cut plus the bulk of the government’s $5.5 billion lift in tax refunds.
While spending on services, such as holidays, is generally holding up or trending a little higher, people are cutting their expenditure on goods.
Consumer confidence, as measured by the ANZ and Roy Morgan, slipped 2.8 per cent over the past week and will finish the year at its weakest level since late 2015.
But there are some signs people are responding to lower interest rates.
New home loans rose 2 per cent in October, taking annual growth to a two-year high of 0.9 per cent. Loans taken out by owner-occupiers lifted 2.2 per cent while investor lending was up 1.4 per cent. There was strong growth in both NSW (5.8 per cent) and Victoria (3.4 per cent).
NAB economist Kaixin Owyong said the most recent data and the RBA minutes suggested an interest rate cut would be on the agenda at the bank’s February meeting.
“In our view, the RBA will downgrade its outlook for consumer spending and growth when it reviews its forecasts in February 2020,” she said. “At that point, we believe the RBA will be forced to cut the cash rate. Past that point, the RBA could cut further and undertake quantitative easing next year unless the government changes course and delivers a meaningful fiscal stimulus.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.