RBA minutes imply wait-and-see stance
Tuesday June 16, 2009, 2:25 pm
The Reserve Bank of Australia has confirmed there is some scope for further interest rate cuts if needed, but the wording of the minutes of its latest board meeting warn that the central bank is likely to stay on the sidelines for a while yet.
The board held its monthly monetary policy meeting on June 2, the day before the national accounts challenged gloomy perceptions of the state of the economy with news of a rise in gross domestic product in the March quarter.
Since then, the consensus that the odds favoured another cut in interest rates has evaporated.
The dominant view is now that the cash rate, currently 3.00 per cent, will most likely not fall any further but instead rise to around four per cent by early in the second half of 2010.
The minutes of the meeting, released on Tuesday, show the board had anticipated a strong result for GDP in view of data released in the lead-up to the national accounts.
"The staff informed members that the available data, including those released during the meeting, suggested a strong increase in the expenditure measure of GDP in the March quarter, but a significant decline in the production measure," the minutes said.
The figures released during the meeting included the March quarter balance of payments data, which showed a strong positive contribution to economic growth from rising export volumes and falling imports.
In other words, a good chance of the strong GDP result reported for the quarter, a rise of 0.4 per cent in GDP, had been factored into the RBA's decision.
The minutes concluded by saying the board had seen no "pressing case for any further action at this meeting.
The minutes said the board still saw some scope for further easing, if needed, thanks to the benign inflation outlook, "if that were needed to support demand at a later stage".
While this remains a possibility, the RBA is clearly hopeful that the positive influences on the economy, noted in the minutes, will prevail and it will not have to cut the cash rate again this time around.
Those positives included a strong recovery in Chinese industrial production and increased production in other east Asian countries, a slower rate of decline in advanced economies, a general improvement in financial conditions - including domestic money market spreads at their lowest since the beginning of the global financial crisis - and improving conditions in the local housing sector.
The minutes also pointed out that the combined expansionary impulse from easier fiscal and monetary policy was "the largest macroeconomic policy stimulus over recent decades".
The weakening labour market and signs it was undermining private sector wages growth were also helping the case for a rate cut if needed.
On the other hand the minutes did note some factors arguing for at least maintaining a mild easing bias.
They included pressure on banks' funding costs from strong competition for deposit inflows, a reduction in the stimulatory effect from earlier falls in the Australian dollar, which had continued to appreciate over the preceding month, tighter conditions in the supply of credit to the business sector and uncertainty over the durability of the Chinese recovery.
In summary, the RBA has simply reaffirmed there is scope for further interest rate cuts, if needed, but that the argument that cuts are needed right now is not strong enough to tip the balance - and may never get to that point
http://au.biz.yahoo.com/090616/2/26wpr.html
Tuesday June 16, 2009, 2:25 pm
The Reserve Bank of Australia has confirmed there is some scope for further interest rate cuts if needed, but the wording of the minutes of its latest board meeting warn that the central bank is likely to stay on the sidelines for a while yet.
The board held its monthly monetary policy meeting on June 2, the day before the national accounts challenged gloomy perceptions of the state of the economy with news of a rise in gross domestic product in the March quarter.
Since then, the consensus that the odds favoured another cut in interest rates has evaporated.
The dominant view is now that the cash rate, currently 3.00 per cent, will most likely not fall any further but instead rise to around four per cent by early in the second half of 2010.
The minutes of the meeting, released on Tuesday, show the board had anticipated a strong result for GDP in view of data released in the lead-up to the national accounts.
"The staff informed members that the available data, including those released during the meeting, suggested a strong increase in the expenditure measure of GDP in the March quarter, but a significant decline in the production measure," the minutes said.
The figures released during the meeting included the March quarter balance of payments data, which showed a strong positive contribution to economic growth from rising export volumes and falling imports.
In other words, a good chance of the strong GDP result reported for the quarter, a rise of 0.4 per cent in GDP, had been factored into the RBA's decision.
The minutes concluded by saying the board had seen no "pressing case for any further action at this meeting.
The minutes said the board still saw some scope for further easing, if needed, thanks to the benign inflation outlook, "if that were needed to support demand at a later stage".
While this remains a possibility, the RBA is clearly hopeful that the positive influences on the economy, noted in the minutes, will prevail and it will not have to cut the cash rate again this time around.
Those positives included a strong recovery in Chinese industrial production and increased production in other east Asian countries, a slower rate of decline in advanced economies, a general improvement in financial conditions - including domestic money market spreads at their lowest since the beginning of the global financial crisis - and improving conditions in the local housing sector.
The minutes also pointed out that the combined expansionary impulse from easier fiscal and monetary policy was "the largest macroeconomic policy stimulus over recent decades".
The weakening labour market and signs it was undermining private sector wages growth were also helping the case for a rate cut if needed.
On the other hand the minutes did note some factors arguing for at least maintaining a mild easing bias.
They included pressure on banks' funding costs from strong competition for deposit inflows, a reduction in the stimulatory effect from earlier falls in the Australian dollar, which had continued to appreciate over the preceding month, tighter conditions in the supply of credit to the business sector and uncertainty over the durability of the Chinese recovery.
In summary, the RBA has simply reaffirmed there is scope for further interest rate cuts, if needed, but that the argument that cuts are needed right now is not strong enough to tip the balance - and may never get to that point
http://au.biz.yahoo.com/090616/2/26wpr.html
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