RBA Minutes of the April Board Meeting: Shifting the Goal Posts

Good afternoon,

 

  • In today’s minutes of the Reserve Bank’s (RBA) board meeting held in April, the message continues to be one in which the RBA is not ready to move official interest rates; “members agreed that there was not a strong case for a near-term adjustment in monetary policy.”
  • However, the commentary hints that the RBA now appears to be more inclined towards a rate cut rather than a rate hike.
  • In the scenario in which the cash rate would need to be raised, the likelihood was viewed as being “low”. The commentary hints at a pick up in inflation as being necessary for this to occur.
  • The RBA also lays out the conditions for a reduction in the cash rate. In this scenario,  “inflation did not move any higher and unemployment trended up… a decrease in the cash rate would likely be appropriate in these circumstances”.
  • The RBA further discusses the effectiveness of easing monetary policy, noting that “the effect on the economy of lower interest rates could be expected to be smaller than in the past.” However, the RBA still has faith in the ability of lower interest rates to boost economic growth through the impact on the exchange rate and reduced interest payments on borrowing.
  • The RBA is still hoping to wait and see how data evolves. Notably, the RBA is wanting further clarification on how to reconcile weak economic growth and the strength in the labour market. While the RBA is not ready to pull the trigger on lower rates as yet, the minutes lay the groundwork for a potential rate cut. The ongoing low inflation environment and expectation for labour market conditions to soften suggests that the case will build for the RBA to lower official interest rates later this year.


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