Coming so shortly after the RBA’s August Statement on Monetary Policy (SoMP) economists and other market pundits did not expect any revelations to flow from the minutes of the RBA’s August meeting. At best it was hoped some indication as to the closeness of the decision to lower the cash rate to 1.50% would be given.
Reactions in financial markets were muted but mixed. Yields on Australian 3 year and 10 year bonds both finished the day one basis point lower at 1.36% and 1.89% respectively. The local currency dropped on the release before climbing for the rest of the day which is generally a “higher future interest rates” reaction. Probabilities of official rate changes implied by cash prices were virtually unchanged.
AMP Capital’s Shane Oliver said there was “nothing new” in the minutes which had not already covered in the August SoMP. He still expects another rate cut in November. Westpac economist Matthew Hasson partially agreed but he does not think another rate cut is in the offing. “Having cut rates in August, the RBA is clearly in ‘watch and see’ mode…The Board is almost certain to keep rates on hold in September. However we continue to view the Reserve Bank as carrying an easing bias – implicit in its inflation forecasts and in our view in much of its rhetoric….Accordingly we expect that the Bank will keep rates on hold over the remainder of 2016 despite an apparent easing bias.”