RBA Meeting Minutes

• Concise RBA meeting minutes


• Brexit holds centre stage in RBA discussions

Members of the Reserve Bank of Australia started their dialogue of the developments in the financial markets by noting that the markets have had increased volatility since during the period of the Brexit. Amidst major daily price movements and higher than average volumes, market behaviour has been resilient. The RBA also noted that the events had become a symbolic stress test of the market’s structure in the aftermath of the regulatory reforms which were conceived after the financial crisis.

They also perceived the most significant events in the market that persisted throughout the Brexit volatility to eventually surround the UK referendum as the rise in the yen, the fall in the pound and the plummet in bond yields to historic lows in major markets including Australia.

The AUD had edged over the USD in trade-weighted terms during the last month, after it was affected by the switching expectations involving monetary policy in the US and Australia, as well as the outcome of the Brexit.

Members also noted that yields of sovereign bonds in the UK have fallen substantially, in spite of the downsizing of the UK's credit rating. The RBA members said that a major share of the global sovereign bond markets was trading at negative rates, Swiss bond yields have also been in the red for almost 50 years. Meanwhile in Australia, the 10-year bond yield fell to a historic low of 1.95%, including the decline in the yield last Friday, which is the largest daily fall since September 2001. The majority of other financial market movements in response to the Brexit have been undone excluding the briefly widened bond spreads in the UK and Europe

The Brexit was swiftly trailed by a global decline in share prices, with the exemption of Japanese and European share prices, other economies have well recovered their losses, banking share prices have slumped lower, most especially the shares of domestically focused UK banks and European banks. The RBA noted that the current crisis in the Italian banking system especially those of Italian lenders have resurfaced. The share prices in Australia fell by an estimated 4% between 2015 and now, with very distant results across sectors portraying the ongoing rebalancing of the economy coming after the mining investment boom.

Australian bank debt spreads have climbed marginally in the wake of the Brexit, but yields have maintained their previous low levels, the RBA have noting that Australian banks had issued a huge sized debt this year, weakening the importance of issuing another debt in the near future if the debt markets situation is still unresolved.

Refinanced loans following the cash rate reduction in May spurs the expectation of a maintained depreciation in the average housing lending rates, amidst the RBA's conclusions that borrowers’ requirements for banks' serviceability would remain the same

In the meeting, the board also decided that the cash rate would remain on the same level at 1.75%.