Bill Evans, analyst at Westpac, suggests that they were surprised that the Board did not indicate more clearly that it was planning to take some time to assess the timing of the next cut.
Key Quotes
“There are two very important aspects to the minutes of the October meeting of the Reserve Bank Board.”
“The first one relates to the conclusion to the minutes, “the Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further, if needed”¦”
“This language is consistent with the July minutes following the cut at that meeting, “The Board would continue to monitor developments in the labour market and adjust monetary policy if needed “¦”.”
“There was no move in August but this conclusion left the door open.”
“This clearly left the door open for a move in October which subsequently eventuated.”
“The second important aspect of these minutes is a very detailed justification of the decision to cut in October and a general argument as to why lower rates still work in Australia. Firstly, the Board noted that it was the level of rates rather than the change that was the important determinant. Holding back rate cuts in anticipation of a negative shock was not the best policy. Instead, it is better to cut; strengthen the economy immediately if deemed necessary so that the economy would be better placed to absorb a negative shock.”
“We were surprised that the Board did not indicate more clearly that it was planning to take some time, given the decision in October, to assess the timing of the next cut. That indication would have been consistent with the wording used in August.”
“However, the language that is used is similar to July, following the cut at that meeting and, of course, there was no follow up move in August.”
“The Board is clearly leaving itself the flexibility to move in November but we believe the hurdle is high and while the minutes leave us with little doubt that another cut is expected we are holding to the view we adopted in July that the next moves would be in October and February.”
Share
