We got the Reserve Bank of Australia September meeting minutes earlier today:
- RBA Minutes: Economic drag from falling mining investment looks to have peaked
Westpac Chief Economist Bill Evan's conclusions on the Minutes, and yesterday's new government / RBA agreement ... what these means for the policy outlook (in brief):
- the (RBA) has released the Statement on the Conduct of Monetary Policy which sets out the new Governor's agreement with the Government. ... The agreement that has been adopted is "an appropriate goal is to keep consumer price inflation between 2 and 3 per cent on average over time." This "over time" concept replaces "over the cycle" and appears to provide the Bank with more flexibility for inflation to remain at or below the bottom of the band for an extended period.
- It suggests that under this agreement there will be less urgency to push inflation back to within the 2-3% medium term goal.
- The new Governor has also adopted a more explicit recognition that included in his objectives "financial stability". The most likely channel through which interest rates can affect financial stability is via the housing market.
- On balance this new agreement reduces the urgency to cut rates further even in the face of another inflation shock.
- While no one gives any chance to a policy move on October 4 there is still plenty of anticipation that the Bank will cut rates at its following Board meeting on November 1. We do not think that there is any evidence in the themes set out in these minutes or the recent Statement on the Conduct of Monetary Policy that would lead to a move in November. We remain comfortable with our view that the overnight cash rate will remain steady for the next few years.
(bolding mine)
