Summary: RBA May minutes line up with May SoMP; financial markets calmer; policy working as expected; crunch time for some corporate bonds may come during economy’s coming restructure.
The Reserve Bank of Australia left the official cash rate target at 0.25% at its May meeting. Several days later, it released its May Statement on Monetary Policy (SoMP).
The minutes of May’s meeting have now been released. As David Plank, ANZ’s Head of Australian Economics put it, “The economic discussion at the RBA Board meeting on 5 May reflects the analysis contained in the SoMP and thus has already been well canvassed.” Westpac chief economist Bill Evans said pretty much the same thing. “After having seen the Governor’s Statement and the May Statement on Monetary Policy it was unlikely that there would be anything particularly new in these minutes.”
In the “Considerations for Monetary Policy”, the board noted financial markets had improved over the prior month, although conditions had not completely normalised.” However, there was also an acknowledgement of “the very significant economic contraction that was taking place”.
Fiscal and monetary policy was “softening the contraction and would help support the economic recovery”. The RBA area of responsibility, monetary policy, “was working broadly as expected.”
As far as future policies were concerned, the minutes stated the suite of policies introduced in mid-March “had been introduced only recently” and thus “the best course of action was to maintain the current policy settings and monitor economic and financial outcomes closely.”
The minutes came out on the same day as the release of the latest ABS payroll report and domestic Treasury bond yields moved noticeably higher, although one could argue they were just moving in line with US Treasury bond movements overnight. By the end of the day, 90-day bank bills were unchanged at 0.10%, the 3-year ACGB yield had ticked 1bp higher to 0.26% while 10-year and 20-year yields both finished 7bps higher at 0.97% and 1.57% respectively.