Bill Evans, analyst at Westpac, explains that RBA’s July minutes confirm Westpac’s expectation that the bank will take a break from rate cuts and continue to expect a third cut to be delivered in November.
Key Quotes
“The best way to assess the likelihood of a move in August is to compare the wording in the June minutes with the wording in the July minutes. In the June minutes, the key “considerations” section noted “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. This very strong sentence was not repeated in the July minutes.”
“Furthermore the minutes do state that “the Board will continue to monitor developments in the labour market closely, and adjust monetary policy if needed”.”
“Finally, my experience is that when a central bank decides to pause, it often refers back to previous policy decisions. In the final paragraph of the July minutes, the Board notes “this decision, together with the reduction in the cash rate decided at the previous meeting, would assist in reducing spare capacity in the economy”.”
“The Board confirms that it expects that GDP growth will return to trend over coming years. That comment provides a fairly clear indication that the GDP forecasts that will be provided in the August Statement on Monetary Policy will maintain the view that GDP growth in 2020 will reach 2 ¾ per cent.”
“On May 24th, Westpac complemented its February call for two rate cuts in the second half of 2019 with the likelihood of a third cut. However, we expected that there would be some months break between the second and third cuts. With the first two cuts now having been delivered, and some clear signals from these minutes that the Board is likely to pause before further adjustments, we remain comfortable with our call that the next move will be in November.”
“The minutes confirm that the Board is prepared to move and probably expects to move again but prefers to wait a while to assess the impact of the first two cuts. Our forecasts for growth, inflation and the unemployment rate clearly point to the need for further stimulus, and we expect that the November meeting will provide that timing. However we do recognise that while growth and inflation remain key policy objectives, the labour market has the most immediate priority. With updates to conditions in the labour market being provided on a monthly basis, prospects for the next move being as early as September or October cannot be dismissed.”
Share
