RBA Minutes

The RBA Minutes released yesterday revealed a much more balanced Board meeting than the market had anticipated. Although the Bank did refer to a tightening bias with the Asian region remaining strong there was concern for the North Atlantic economies as growth remained subdued. The minutes pointed out that “there were clearly downside risks, not least because there was little room for policy to respond if conditions deteriorated”.

The domestic economy has developed as the RBA had expected over recent times, with the CPI release on Oct 28 the next big ticket item. Confidence within the business sector remained at or above average levels, even though Business credit had fallen, reflecting investment expenditure funding from higher profits. The Board also took the AUD appreciation into account as it represented “a tightening in financial conditions”, allowing for a little more flexibility in regards to monetary policy.

Looking to the Nov 2 meeting, it appears to be an each way bet. As stated, “rates would need to rise at some point”, however the Board does appear to have short-term options. We are still expecting a rise before Christmas. The other factor they need to consider is a 25 point rise may result in a 35 - 50 point rise in mortgage rates as banks claw back margin. The 25 point cash hike will therefore have a much more pronounced effect than intended.

Click here for a link to the Minutes.


CHINA
Overnight the People's Bank of China lifted interest rates by 25 points. There was no explanation for the rise but their Q3 GDP figures are due out in two days so it could be that the previous efforts to calm the economy may not have been successful. As a result the AUD has come back a couple of cents.