Australia | Jul 20 2010
By Rudi Filapek-Vandyck
The Reserve Bank of Australia appears to have used the minutes of its July 6 Policy Meeting to once again bring home the message that it would like to leave the official cash rate (4.50%) untouched for as long as possible.
The important question for the Board at its next meeting, conclude the minutes released today, would be whether the new information materially changed the medium-term outlook for inflation. But the minutes appear to provide the answer to this question when stating:
“Consumer price inflation data for the June quarter would be published on 28 July, and the staff expected them to show the underlying rate of inflation continuing to moderate in year-ended terms, to be below 3 per cent for the first time in three years.
“CPI inflation was, however, expected to rise to a little above 3 per cent, partly due to the effects of higher taxes on tobacco. Measures of inflation expectations had eased a little over the past month.”
Another key sentence in today's released document, in my view, is the sentence:
“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.”
The Australian domestic economy should remain on solid footing, in the RBA's view, with weak consumer spending compensated through increased business investments. A situation, the Reserve bank admits, will need to be monitored closely.
The extra insight into the world of Australian retail came with the following sentence:
“Liaison with retailers in late June suggested a slightly more positive picture than a few months ago, although many retailers reported that conditions remained subdued and that significant discounting had been required to drive sales.”
The RBA is on hold for as long as it possibly can be. That is and remains the message.
