RBA Minutes: No sense of urgency to cut rates - TDS

Research Team at TDS, notes that the RBA’s May Minutes were released today and they reveal no sense of urgency for the Bank to cut rates, the Bank debating the merits of cutting or awaiting further information.

Key Quotes

“Accordingly a June cut should be off the agenda and a July cut is a lower probability as well

The Bank’s decision to cut rates was based on broad based weakening of inflation pressures, which could not be explained by temporary factors and given CPI data is subject to less measurement error, it appears this gave them the confidence to go rather than wait. Otherwise, with little change in the Bank’s other forecasts to growth/unemployment, it does support the RBA waiting for Q2 CPI on 27 July before they consider cutting again at the August meeting (TD and consensus for an August cut).

There was no explicit easing bias in today’s minutes, just as there was no explicit easing bias in the Statement. This is exactly what we saw in Feb 2015 when the Bank cut rates. However it was only in March 2015 that the Bank expressed an explicit easing bias. So we will have to wait till next month’s statement to see if this explicit easing bias is reasserted.

Given that the change in the RBA’s inflation forecasts centred on changing dynamics in wages and unit labour costs, it is worth noting that Staff Forecasts embody the expectation that growth in the Wage Price Index could stabilise around current quarterly levels. In this context, tomorrow’s Q1 Wage Price Index takes on more significant than usual. This index is at record lows and if this dips again, then the market odds of an Aug cut will grow.”