As well as the above, Glenn Stevens also spoke yesterday but talked mostly about Bank Regulation rather than adding anything to the minutes. He did indicate though that if rates needed to rise in August the election would have no bearing on their decision.
The statement indicates that the troubles in Europe influenced their decision to leave rates unchanged and that they suspect the road could remain shaky in the months ahead.
The inflation figures due out next week remain an important consideration for their meeting in August but they seem to think the figures will remain within tolerable levels. A rouge figure could have them thinking twice though.
My take is the pause will continue if next week's figures are in check.
The concluding section, as always, is quite illuminating and I've pasted it below. A link to the whole statement is here.
Considerations for Monetary Policy
The global economy had continued to expand at around trend pace in recent months, although the pattern of growth was uneven among regions and developments in financial markets over the past month had highlighted some important risks. There had been further focus on the European fiscal situation and banking sector problems. While the measures being taken there should help the prospects for sustainable growth over the longer term, prospects for European growth going into 2011 were weaker. The US economy had shown moderate growth in the first half of 2010, but members noted that recent labour market outcomes had been disappointing.
Members saw some moderation in Asian growth as desirable, given concerns about possible overheating in those economies, but there was likely to be some uncertainty in the near term about the extent of the slowing. For Australia, a critical medium-term question was the extent to which economies in Asia could continue to grow strongly in the face of what could be an extended period of subdued conditions in the major North Atlantic economies. Overall, members considered that the most likely outcome was for growth in Australia’s major trading partners to be around trend over the next couple of years.
The domestic economy had been growing at a solid rate over the past year, including a sizeable contribution from fiscal spending. The economy was now entering a period in which private demand was expected to strengthen due to a pick-up in business investment flowing from the high level of the terms of trade. This was expected to offset the scaling back in public demand that would be taking place. There were tentative signs that this ‘hand over’ from public to private demand may be starting to occur, though this would warrant careful monitoring.
As at the June meeting, members judged that the decisions at earlier meetings to increase the cash rate, which had resulted in interest rates paid by borrowers returning to around average levels, afforded flexibility to maintain steady settings in the face of increased international uncertainty.
Members noted that the coming month would see important announcements about the health of the European banking sector, which had the potential to have a significant impact on financial markets and global confidence. There would also be an updated reading on domestic prices. This was expected to show further moderation in the year-ended underlying rate, although underlying inflation was likely to remain in the top half of the target range over the period ahead. Headline inflation was expected to rise, owing to the effects of some tax increases, with the year-ended increase in the CPI rising above 3 per cent. The important question for the Board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation.
Pending this information, the Board judged it appropriate to hold the cash rate unchanged.
The Decision
The Board decided to keep the cash rate unchanged at 4.5 per cent.
