RBA minutes: easing bias back in

The minutes from the May RBA board reintroduced the explicit easing bias that was missing from the post-meeting statement. The minutes restated comments about “recent encouraging trends in household demand” and went on to note “further depreciation of the exchange rate seemed to be both likely and necessary, particularly given the significant declines in key commodity prices”. The minutes indicate that the board debated leaving the rate cut until June, but decided to go ahead given new forecasts for persistently soft growth. The minutes also said that board members agreed not to give any clear guidance on future policy direction, following its widely expected quarter point cut in the cash rate to a record low 2.0%: “Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy. Members did not see this as limiting the board’s scope for any action that might be appropriate at future meetings.” The discussion on the economy was in line with the Statement on Monetary Policy and covered areas such as non-mining investment failing to pick up as much as the RBA would like. “Members noted that if households respond to very low interest rates and higher asset prices to a similar degree as they had in the period prior to the global financial crisis, expected outcomes would include a lower saving ratio and higher consumption growth than embodied in the forecasts. Alternatively, if households were less inclined to bring forward their consumption than had been factored into the forecasts, perhaps to limit the increase in their leverage, consumption growth would be likely to be weaker and the saving ratio higher than forecast,” the minutes said.