The RBA held the official cash rate steady at its board meeting in May, a decision which surprised very few people. Given the current state of prices in the cash futures market, there is no material expectation of any rate rises this year and well into 2019.
The minutes from that meeting have now been released and, as Commonwealth Bank’s Kristina Clifton said, there were “no surprises”. In fact, there is very little indication of any change on the horizon. As Bill Evans, Westpac’s chief economist put it, “If anything, these minutes seem to imply even greater patience with the current policy of steady rates. In describing the current policy as ‘a source of stability and confidence’, the Bank is clearly contrasting its policy with the Federal Reserve’s ongoing tightening cycle, but feels no embarrassment with its stance.”
There was also some discussion by the RBA of movements in BBSW which had created some unease recently. It explained a higher BBSW in terms of a flow-on effect of “higher cost of borrowing in US dollar short-term money markets” into other markets “including Australia.” Unfortunately, the board could not provide much guidance as to whether it was a short-term aberration or something else. “It is not clear how much of the rise in LIBOR and hence BBSW is due to structural changes in money markets and how much is temporary. In the last couple of weeks, these money market rates have declined noticeably from their peaks. We will continue to monitor how this unfolds in the period ahead.”
