RBA minutes unlikely to lift fog of uncertainty


The Reserve Bank of Australia (RBA) on Tuesday will most likely pass up the chance to clarify the outlook for monetary policy.

The RBA is due to publish the minutes of its November 3 board meeting on Tuesday morning but, judging by its public comments so far this month, the central bank is comfortable with the uncertainty clouding the likely outcome of next board meeting on December 1.

In announcing its November 3 decision to move the cash rate to 3.5 per cent from 3.25 per cent, the RBA published a terse, one-page media release.

The 76-page quarterly Statement on Monetary Policy (SOMP) three days later, on Friday, November 6, can be seen as a director’s cut of the media release – what the RBA would have said if given more time and space.

With the exception of specific forecasts for gross domestic product (GDP) and inflation, the SOMP really is very much like the director’s cut of a Hollywood movie.

It takes a lot longer to say pretty much the same thing and, if anything, gains more ambiguity than clarity in the process.

The day the RBA released its SOMP, US economist David Hale, global economic adviser to the Commonwealth Bank of Australia, said “Reserve Bank people” had told him in the previous two weeks that interest rates at three per cent were “incredibly low, unnatural and crisis driven”.

“They want to get to four per cent as quickly as possible, maybe in the next 12 weeks,” Mr Hale said.

That precise sentiment was not obvious in the SOMP released on the same day.

“The cash rate remains at a low level and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected,” was about as close as the SOMP went to what Mr Hale was apparently told.

Given that the economy appears to be evolving “broadly as expected”, a continuation of the recent pattern – a quarter percentage point at every board meeting – seems likely.

This is not guaranteed, though.

Seasoned RBA-watcher Rory Robertson, Macquarie Bank’s interest rate strategist, says the central bank is more likely to pause in December before getting back on the rate-hike path.

“My best guess today is that the RBA will sit on its hands in December, take a break over summer and then hike several times in the first half of 2010, if the local economy continues to strengthen,” Robertson said in a briefing note on Monday.

Financial market players are generally more convinced a hike is imminent.

The futures market has priced the cash rate to be 3.7 per cent after the December 1 meeting, about four fifths of the way from 3.5 per cent to 3.75 per cent.

While such a range of views can plausibly be seen as consistent with the RBA’s official pronouncements, the minutes of the November 3 meeting seem unlikely to make things any clearer.

The RBA passed up the opportunity to be more explicit in the media release and the SOMP earlier in the month and there is no particular reason to expect a sudden change of heart.

In any case, the minutes will refer to the discussion at the meeting, but not how the RBA’s thinking may have shifted since.


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