The RBA’s May board meeting minutes have markets less confident of any further rate cuts this year. After the March CPI figures were followed by a 25bps cut, markets quickly factored in another rate move down to 1.50% and were placing a reasonably high probability on another cut down to 1.25%. However, economists pointed to the “Considerations” section and focussed on a sentence which is not always present: “members discussed the merits of adjusting policy at this meeting or awaiting further information before acting.” The general interpretation was the RBA’s decision to cut rates in May was not clear cut, which now casts doubt on any other rate moves before August when June quarter CPI figures are published.
However, it is worth recalling recent history in regards to a phrase in the April minutes. The words “with inflation close to target” was attached to some stock-standard words which had not changed from the previous month. The change was seen as being on the hawkish side. Look at what then happened; the RBA reduced the official cash rate.
In any case, the AUD jumped three-quarters of a US cent immediately after the release, a sign the currency market is factoring in higher-than-previously-expected rates. The bond market took a similar view and 3 year bonds moved up 4bps while 10 year bonds moved up 5bps.
Westpac’s Bill Evans was fairly neutral in his response saying, “It is difficult to see any significant additional insights in these minutes relative to the more comprehensive Statement on Monetary Policy.” NAB was similar with its take on release. “In any event, NAB’s view is that the Board will at least want to see the Q2 inflation data before deciding whether to cut again.” ANZ was more forthright in its view: “However, we believe the absence of an easing bias is normal practice immediately following a rate cut, and the size of the downgrade to the Bank’s inflation forecasts strongly suggests that further monetary policy easing is likely. We continue to expect further easing given the soft inflation outlook, and we are looking for another 25bp cut in the cash rate to 1.5% at the August meeting.”
Click here for the full version of the May minutes.