The RBA held the official cash rate steady at its board meeting in April, as it had for every meeting since the cash rate was reduced to 1.50% in August 2016. Statements from RBA officials through 2018 had indicated the next move was “more likely to be an increase” until February of this year. Then, the RBA changed its tune and stated “the probabilities around these scenarios were now more evenly balanced than they had been over the preceding year…”
This perceived change in bias led confirmed market expectations regarding monetary policy. Whereas a rate increase had been largely expected until the end of last year, prices then rapidly moved to neutralise any idea of an increase. Shortly thereafter, they moved to price in a rate cut.
After the February meeting, a rate cut was almost totally factored into prices of interest-rate securities. As weeks passed, this expectation became a certainty as far as the collective wisdom of the market was concerned and by the time the March meeting had taken place, futures contracts implied a second rate cut had been significantly factored in.
Most of the time, the RBA Board meeting’s minutes are used to clarify previous statements made by RBA officials or to pinpoint the issues on which the RBA has a current focus. However, economists had noted a change to the concluding paragraph of the statement which followed the April board meeting. The latest meeting’s minutes offered a chance to further understand the RBA’s thinking.