Commonwealth Securities take on the Reserve Bank of Australia minutes today
- The Reserve Bank Board minutes make it clear that policymakers are waiting on more timely economic data to gauge how the economy is tracking
- However the minutes have also set the scene for next week inflation data and the subsequent May 3 Board meeting - highlighting potential triggers for an interest rate cut
- What makes the prospect of another rate cut a possibility in coming months is the discussion on the Australian dollar. Board members noted that the rising Australian dollar might "complicate" the economic recovery - essentially hamper the rebalancing efforts "towards non-mining sectors of the economy"
- A super low inflation result would pave the way for the Reserve Bank to cut rates again. However it would need to feel confident that a rate cut would have the desired impact in driving the Aussie dollar lower. Most central banks that have eased monetary policy in the past few months have seen their currency continue to strength
- In addition it is difficult to justify another rate cut in light of unemployment falling to a 2½-year low. No doubt if a slowdown due to the Federal election took place it could just tip the balance towards a rate cut.
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A useful perspective from ComSec, but not one I can agree with. That's not how I read the Minutes.
I reckon the RBA is very much on hold, the AUD strength is not enough to prompt a rate cut.
The RBA noted policy is 'very accommodative' ... not just accommodative, but 'very' much so. I can't see them cutting again unless they got rid of that 'very'. A case can probably be mounted that with such wording they've moved to neutral and the next step may well be to move a tightening bias (probably a good way off that, though).
