Daily Commentary BY THE CURVE TEAM –

RBA Minutes Give Clues to the Outlook for Monetary Policy

17th of July, 2019

The RBA’s minutes saw the RBA revert to their default position on the outlook while leaving the door open for further cuts.

After back to back rate cuts, the minutes from the July Board meeting suggest that the RBA is set to sit back and assess incoming data before taking any further imminent action. In the closing the minutes, the RBA said that:

“The Board would continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”

This is the usual data dependant, wait and see approach that leaves the door open for action but doesn’t suggest that any further change to policy settings are imminent. The closing statement is a distinct shift to the previous months minutes which said:

“Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead.”

So the focus now shifts to the Governor Lowe’s Anika Foundation speech next week for further clues to the outlook. Governor Lowe may lay the foundation for any change to the RBA’s outlook which is set to be updated after the August Board meeting in their next Quarterly Statement on Monetary policy due August 9th.

Monetary policy was also a hot topic overnight with plenty of action from members of the Federal Reserve. While Chairman Powell and other members continue to suggest rate cuts are coming, they are also pushing back on the market expectations of just how much support the Fed will deliver.

The message from overnight is that the market might be too aggressive in their expectations for rate cuts. While the Fed is likely to deliver policy support over the months ahead, the market might end up a little disappointed.

David Flanagan

Director - Interest Rate Markets