The Reserve Bank of Australia’s minutes from its October board meeting are out, and show the board continuing with its mainly neutral position on official interest rates over the coming months.
In terms of the domestic economy the short version is that while there’s been a notable increase in sentiment among businesses and households the stubbornly high dollar – it has in fact been rising against the USD – remains something the bank is watching carefully.
Here’s the key segment:
Members noted two developments over the past month, namely the appreciation of the exchange rate and the pick-up in measures of both consumer and business confidence over recent weeks. It was difficult to know how significant the effects of either of these developments would be, partly because it was uncertain whether they would be sustained.
The Board’s judgement was that, given the substantial degree of policy stimulus that had been imparted, it would be prudent to leave the cash rate at the existing low level while continuing to gauge the effects. Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them. The Board would continue to examine the data over the months ahead to assess whether monetary policy was appropriately configured.
The likelihood of a rate cut on Melbourne Cup Day has been fading in recent weeks. There’s plenty of equivocation though. For example, the statement notes:
- the effect of low interest rates has further to run
- indicators point to a pick-up in the housing market.
- growth will remain below trend before an expected pick-up
- it remains to see if the pickup in consumer confidence will be sustained
The rise in domestic activity that the RBA has been looking for simply isn’t there at the moment for the board to start sending some signals that the cutting period is over. Many forecasters have been pushing out their predictions to next year for a potential next rate cut, mainly based on the Reserve having to use some of its shots still in the locker to create some downward pressure on the Australian dollar and stimulate credit demand across businesses and households.
There’s a tiny bit of momentum in the recent data. The board’s going to wait and see if it’s the start of a lot more movement.