There was no easing bias in the RBA’s statement, but that doesn’t mean it’s done cutting rates

The Big Easy – Ernie Els Photo by David Cannon/Getty Images

While the Reserve Bank of Australia’s May interest rate statement was decisive, there has been some discussion in markets about the absence of an easing bias in the accompanying monetary policy statement, creating confusion as to whether it means the bank has finished cutting rates.

Here’s the final paragraph of the May statement released today.

Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

Neither here nor there when it comes to the outlook for interest rates.

However, when the RBA last cut rates last year, the same thing happened. In short, the absence of an easing bias in a rate-reducing statement is not unusual.

This is the final paragraph of the RBA’s February 2015 policy statement when it cuts rates to 2.25%, just three months before it followed up that move with a further reduction in April.

For the past year and a half, the cash rate has been stable, as the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad. At today’s meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.

Like today’s statement, there was no clear indication that further rate cuts could follow suit.

And here’s the bank’s May 2015 statement, again just after it cut rates to 2.0%.

At today’s meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.

Again, there was no clear bias — either to the upside or downside.

While the bank then subsequently held rates steady for the next eleven meetings, it shows that the absence of an easing bias today does not automatically imply further rate cuts are off the table.