The RBA’s minutes to this month’s Board meeting were released today and even though they are largely historic now after the turmoil since the meeting earlier this month they still made really interesting reading because of what they covered and how they covered it. It is a long doc, as minutes always are, but rather than have you read it but my summary would be that the meeting went something like this.
“Gee inflation is getting uncomfortably high again – we are so right to be worried. But gee whiz there are some near term risks to our outlook. Let’s talk about putting rates up to make sure everyone knows our central tendency but we’d better not do it in the current environment. But let’s make sure we tell them we want to tighten so that people don’t believe this silly market pricing of multiple easing”.
At least that’s how I read them anyway.
Now I’m genuinely not trying to be disingenuous here – as regular readers know I believe the RBA is the best central bank on the planet but why else would the RBA Board have spent so much time talking about risks in the global economy and to the local household sector yet still felt the need to tell us they talked about tightening. I find it a really interesting behavioural and signalling outcome. It is one that says the RBA will only cut if they are forced to by an offshore event or, crucially, inflation subsides.
As readers know we have been arguing against rate hikes for some time now and with the current and prospective global ructions and economic outlook ultimately it seems more likely than not that the RBA does cut rates. Indeed we get the idea that the RBA is pushing when they reiterated their uncomfortableness with the inflation outlook and are thus still on high alert.Here is how they summarised the tension in their conclusion in the minutes,
Members considered whether the recent information warranted further policy tightening. The argument for tightening further was that underlying inflation had started to pick up and the central projection in the staff forecasts envisaged it rising above the target range during the forecast period.
The case against tightening at this meeting was that the downside risks to demand had probably increased, as a result of the acute uncertainty in global financial markets over the recent period. If the financial market turmoil continued, it could further weaken household and business confidence. This in turn could weaken the outlook for demand relative to the central forecast and, over the medium term, dampen the inflation outlook.
I guess from our point of view we get that because if markets and economies had settled down and Australian consumers had started spending again Australia could be facing a 5% CPI outcome like it did in 2008. That would not be a good economic outcome.
For us however the developed world outlook is slanted more toward deflation than inflation and this weakness will impact the Australian economy. But these minutes today highlight that in the Reserve Bank’s mind at least this is some way off.
Full link to Minutes here.
Greg McKenna – on the road
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Updated at 4.17pm @ Sydney Airport
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