By Garry Shilson-Josling
Another interest rate rise is still on the agenda, but its timing has been pushed back, the minutes of the central bank’s June 7 monetary policy meeting indicate.
The Reserve Bank of Australia (RBA) is sticking with its central forecast of a pickup in economic growth to an "above trend" pace, which would be expected to cause a "gradual pick-up in inflation".
"This outlook suggested that a further tightening in monetary policy would be necessary at some point", the RBA said in the minutes of the meeting of its board, released on Tuesday.
The mention of a rate rise probably being necessary "at some point" was a repetition of the phrase used twice last month – in the quarterly monetary policy statement and the minutes of the May 3 policy meeting – and again last week in a speech by RBA governor Glenn Stevens in Brisbane.
But the minutes indicate a rate rise may not come as quickly as previously supposed.
"Members considered, however, that the flow of data over the past month had not added any urgency to the need for an adjustment of policy," according to the minutes.
The motivation for this apparent softening of the RBA’s line on a rate rise seems to have come partly from abroad, with economic data indicating slower growth in activity globally.
The RBA detailed the rising tide of uncertainty surrounding Greece’s sovereign debt problems, its effect on share prices and foreign exchange market volatility, and a softening of momentum in the US economy, albeit against a background of still-strong growth in Asia.
There was also a familiar list of negatives from the domestic economic front.
They included weakening investment plans outside mining, caution among households, a weak housing market and a slowdown in employment growth from the rapid pace of late 2010.
The background was still strong, with further evidence of strength in mining-sector investment, notably in mining and the terms of trade – the ratio of export prices to import prices – expected to peak in the current quarter.
But the signs of a softer outlook, both locally and internationally, were enough to soften the RBA’s line as well.
"Accordingly, members judged that it would be prudent to leave the stance of monetary policy unchanged, pending further data on the strength of the international economy and on the strength of domestic demand and inflationary pressures," the minutes concluded.
The catch-all nature of that comment suggests there will be more to the next interest rate decision than the just the official Australian inflation data on July 27, casting more doubt on the possibility of a rate rise at the coming meeting of the RBA on August 2.