RBA Minutes confirm easing bias still in place

Any concerns that the market might have had two weeks ago about the May 5th cut to the Cash Rate can be laid to rest by the Minutes of the meeting released this morning (and available here). The take-away message from the Minutes can be found in one of the later paragraphs…

“In their discussion of the appropriate course for monetary policy, members noted the revised staff forecasts for the domestic economy. Although the recent flow of data had been generally positive, there had also been indications that future capital spending in both the mining and non-mining sectors would be weaker than expected. Overall, compared with the previous set of forecasts, growth was now expected to take longer to strengthen and the unemployment rate was likely to remain elevated for longer. This change, and generally subdued growth of domestic costs, including wages, implied that inflation was expected to be slightly lower than in earlier forecasts though still consistent with the target. On the face of it, this meant that it would be appropriate to consider an easing of monetary policy.”

The Board also discussed the fact that the statement released after the decision would not explicitly signal future directions, saying…

“Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy.”

Of particular note was the final sentence…“Members did not see this as limiting the Board’s scope for any action that might be appropriate at future meetings.”

Although the forex market has responded to the Minutes by selling down the A$ slightly, it will be galling to the RBA that the Aussie remains well above where it was trading 2 weeks ago when they announced the 25bps cut!

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