Reserve Bank minutes released from their May meeting and they reveal reluctance from board members to cut rates.
As we know, the RBA went ahead and cut rates anyway on Federal Budget day to new record lows below 2 per cent, and in combination of the minutes release it has sent the Australian dollar back up to above US73c.
Prior to the RBA’s minutes being released, futures markets had the chance of another rate cut in August pegged at 80 per cent, and the chance of two cuts by next February at 60 per cent.
Reflecting on the board’s minutes, Capital Economics economist for Australia Paul Dales says another rate cut is almost certain despite the softer tone of the RBA meeting.
“We believe that rates will be cut to 1.5 per cent at the August meeting,” he told The Age.
“A lot of what happens next may then depend on the evolution of inflation expectations.”
Despite the surprisingly low recent inflation figures the RBA again got behind the Australian economy in its May minutes, saying it has faith in its underlying strength and its ongoing rebalancing away from resource-related infrastructure investment.
“In coming to their policy decision, members noted that developments over recent months had not led to a material change in the outlook for economic activity or the unemployment rate, but the outlook for inflation had been revised lower,” the RBA said.