Australia | May 20 2008
By Rudi Filapek-Vandyck
The Reserve Bank of Australia hasn’t given up on the idea that official interest rates in Australia may have to rise just a little further to rein in the inflation ogre. Today’s release of the RBA minutes of the Monetary Policy Meeting of the Board on May 6th reveals that, despite a widely carried view that the outcome of the meeting would be for no change to interest rates, board members at the meeting were not equally convinced and actually spent a lot of time in discussing the topic of the possible need for further interest rate rises.
Reports the RBA today (through the release of the meeting’s minutes): “Members spent considerable time discussing the case for a further rise in the cash rate. But on balance, given the substantial tightening in financial conditions since mid 2007, and the extent of uncertainty surrounding the outlook, the Board decided that it was appropriate to allow the current setting of monetary policy more time to work”.
If that doesn’t convince you about the RBA’s determination, the following sentence out of the same closing paragraph from today’s minutes might: “should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, the outlook, and the stance of policy, would need to be reviewed. The Board would need to evaluate prospects for economic activity and inflation in the light of incoming information.”
It would only seem fair to conclude the RBA’s tightening bias is stronger than the market is willing to consider.