RBA minutes highlight inflation worries - ANZ

Felicity Emmett, Head of Australian Economics at ANZ, suggests that not surprisingly, the focus of the RBA minutes was around the Bank’s downgraded inflation forecasts.

Key Quotes

“The minutes highlight the Bank’s uncertainty over the inflation outlook, and its concerns about the second-round impact of lower inflation on wages growth. As the SoMP suggested, the Bank was clearly disconcerted by the broad-based nature of the weakness in nontradables inflation.

Don’t read too much into the lack of an explicit easing bias in the minutes. This is normally the case in the press release and minutes following a rate cut. We continue to expect another cut at the August meeting.

Outlook

While there was no explicit bias in the minutes, this is normal practice in the press release and minutes released immediately post a rate cut. In our view, this does not imply that the rate cut was of the ‘one-and-done’ variety. The extent of the downgrade to the inflation forecasts in the SoMP strongly suggest that further easing is likely. That said, the discussion around the possibility of waiting for further data suggests a lack of urgency and counts against the possibility of a back-to-back cut in June.

We continue to expect further monetary policy easing given the soft inflation outlook, and look for another 25bp cut in the cash rate to 1.5% at the August meeting.”