RBA Minutes: August cut still a close call – ANZ

Research Team at ANZ, suggests that the tone and language used in the RBA minutes were very similar to that used in the post meeting statement, suggesting only a mild easing bias and this more balanced approach compared with the May meeting suggests that an August rate cut remains a close call.

Key Quotes

“Like the post-meeting statement, today’s minutes provide little in the way of a clear easing bias. Clearly the strength in the activity data, particularly the Q1 GDP report, has offset some of the concerns raised by the very weak Q1 inflation report. There was considerable discussion of the stronger-than-expected Q1 GDP data.

While the minutes reiterated that “inflation was expected to remain low for some time” the Board seemed less pessimistic on the wages outlook than at the May meeting. Domestically, the wages discussion was also more upbeat, with the RBA playing down the tick lower in the wage price index in Q1, and highlighting the stability in broader measures of the WPI, as well as the pick-up in the GDP measure of wages.

On housing, the Bank continues to sound relatively relaxed about the outlook, suggesting that some of the recent strength would not stand in the way of further easing. Bank is likely to be unimpressed with the recent rally in the exchange rate given it has occurred alongside a fairly flat iron ore price.

Outlook

The ongoing lack of an explicit easing bias in the RBA’s communication means that an August rate cut is a very close call. It’s likely to come down to the wire, with the Q2 CPI report on 27 July the clincher. We continue to expect a further cut given the size of the downgrade to the Bank’s inflation forecasts and the fact that the mid-point inflation forecast remains at or below the lower bound of the 2-3% target band for the entire forecast period.”