RBA Board Minutes

The RBA clarified it's reasons for pausing earlier this month and implied the pause will last a little while - or at least until August. The CPI figures released at the end of July will be closely watched and IF inflation is pushing the upper boundaries of the RBA inflation range they MAY lift rates again.

There was also a speech by RBA Deputy Governor Ric Battellino yesterday where he alluded to the European situation potentially being worse than the RBA thought and that China slowing (and avoiding a bubble) wouldn't be such a bad thing.

I've pasted the concluding paragraphs from the statement below as well as a link to the statement.

Considerations for Monetary Policy

In considering the setting of monetary policy, members noted that the situation in Europe had deteriorated significantly over the previous month. Market confidence had been severely eroded, and some governments were now in the very difficult position of having to tighten fiscal policy at a time when growth remained weak. Notwithstanding the actions that had been taken by European policymakers and the IMF, the situation remained uncertain. The difficulties in Europe would inevitably weigh somewhat on prospects for global growth. However, in areas such as Asia where growth had recently been strong, it had become more likely that the withdrawal of policy stimulus would be delayed as a result of the developments in Europe.

While the international environment facing the Australian economy had become more uncertain, members noted that the medium-term outlook remained positive. The prices of Australia’s main commodity exports were still elevated, despite recent falls, and the high level of the terms of trade would add to domestic incomes and demand. Most indicators suggested that the economy was continuing to expand and employment growth had been solid. Conditions, however, clearly differed across sectors and aggregate spending was still being supported by public demand. While recent data for prices and wages suggested that the disinflationary forces in the economy were not quite as strong as previously expected, global events could also have implications for the inflation outlook in the medium term. Members noted that the CPI data for the June quarter, which would be released in late July, would provide information on the extent of inflationary pressures in the economy.

As a result of actions at previous meetings, policy had moved from the very expansionary settings reached in early 2009 to the point where interest rates paid by borrowers were now around their average levels of the past decade or so. Members judged that these previous actions afforded policy the flexibility to await information on how the recent market uncertainty might affect the global economy, as well as news about the outlook for inflation. For the near term, therefore, members judged that it was appropriate to leave the cash rate unchanged.