The RBA cut the official cash rate by 25bps for a second time this year at its July board meeting, taking the cash rate target down to 1.00%. It has not been lower in the 60-year history of the Reserve Bank.
Statements from RBA officials through 2018 had indicated at the time the Bank’s next move was “more likely to be an increase”. Around February of this year, the RBA then changed its tune and stated “the probabilities around these scenarios were now more evenly balanced than they had been over the preceding year…”
Two months later, the RBA’s April minutes stated “there was not a strong case for a near-term adjustment in monetary policy.” However, the minutes also stated a cut in the cash rate would be appropriate “where inflation did not move any higher and unemployment trended up…”
By May, the RBA had shifted and if “there was no further improvement in the labour market in the period ahead….a decrease in the cash rate would likely be appropriate.”
The first-rate cut since August 2016 was announced after the June Board meeting, with the second cut announced one month later at the July meeting.
The minutes of that meeting have now been released. In the meeting, the Board’s deliberations once again focussed on spare capacity in the labour market. However, they also explained the rationale behind the necessity of two rate cuts in as many months.