The RBA released minutes to it's last board meeting yesterday. They discussed a number of factors such as the improving global economy (GDP rose in all major economies apart from the UK in the Sept qtr), the strength in China (GDP growth was estimated at 2.25% in the Sept qtr after 4% in the previous qtr), and inflation and unemployment forecasts that are already well known from the recent Statement On Monetary Policy.
The conclusion was that spare capacity in the economy is continuing to be whittled down and that "further gradual adjustment" in the cash rate is appropriate. We continue to expect therefore that there will be another 25 point lift in December.
I've pasted below the final three paragraphs of the minutes as they give a good indication of their thinking:
Overall, members considered that the recent information was consistent with the conclusions reached by the Board a month earlier: namely, conditions in the global and Australian economies were significantly better than had been expected earlier in the year when the Board had lowered the cash rate to 3 per cent; the Australian economy was operating with less spare capacity than earlier thought likely; and the growth outlook for the next few years had improved. The Board therefore concluded that it remained prudent, over time, gradually to reduce the degree of monetary accommodation.
In considering the pace of that adjustment, members were conscious of balancing risks. On the one hand, business and consumer confidence could prove fragile, and economic activity at home and abroad might slow more than expected as the effects of stimulus measures faded. Also, the rise in the exchange rate would constrain output and dampen inflationary pressure, and credit conditions for some borrowers remained quite difficult. On the other hand, a lengthy period with interest rates at a very low level carried its own risks, particularly once the threat of serious economic weakness had passed.
After giving careful consideration to these issues, members judged that it was prudent to take a further step to lessen the degree of monetary stimulus. Looking ahead, members expected that if economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time, though the pace of the adjustment remained an open question.
