The release of the July minutes early in the week sparked a mini-storm in Australian financial market. Bonds yields, the probability of rate rise implied by futures markets and the local currency all jumped.
Guy Debelle is the Deputy Governor of the RBA and at the end of the week he gave a speech in Adelaide with the title” Global Influences on Domestic Monetary Policy”. In this speech he touched on various influences on domestic policy which act either through the real economy or through financial markets. A large part of the speech was devoted to a discussion of various influences on the neutral rate, one being “international factors”. It was a discussion of the neutral rate and the subsequent appearance of a paragraph in the RBA July minutes which set off the kerfuffle at the start of the week. Debelle’s speech was an opportunity to send a calming message.
In his speech there was a paragraph which comprised three sentences. This is the paragraph:
“There was a discussion of the neutral rate at the most recent Board meeting, as detailed in the minutes of the meeting released earlier this week. No significance should be read into the fact the neutral rate was discussed at this particular meeting. Most meetings, the Board allocates some time to discussing a policy-relevant issue in more detail and on this occasion it was the neutral rate.”
In other words, the RBA Board discusses concepts such as the neutral rate and the gap between it and the actual cash rate all the time.
While most of the speech was an academic view of international linkages with Australia, this section of the speech stands out. It stands out because it was not necessary. The conclusions which were reached would have been unaffected without these three sentences. Therefore, it stands to reason the inclusion was a deliberately designed to deal with fallout from the release of the July minutes. Why did the RBA think such a course of action was required?