The Reserve Bank has revealed exactly why it kept interest rates on hold this month, but has offered an uncharacteristic silver lining to mortgage holders who are desperate for relief.
Today, the RBA released the minutes from its July meeting in which Governor Michele Bullock and her monetary policy board decided to keep the cash rate on hold at 3.85 per cent, a move that shocked economists.
However, those minutes included an admission that a rate cut was all but certain later in the year – a rare step from a central bank that has been at pains to avoid providing anything that could be considered forward guidance to markets and borrowers.
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“All members agreed that, based on the information currently available, the outlook was for underlying inflation to decline further in year-ended terms, warranting some additional reduction in interest rates over time,” the minutes state.
That’s a stark contrast to Bullock’s approach of steadfastly refusing to foreshadow what the RBA might do in future meetings, in an attempt to avoid predecessor Philip Lowe’s infamous mistake of suggesting in late 2020 and early 2021 that the cash rate would remain low until 2024, only for a string of 13 hikes to begin in May 2022.
An unexpected rise in unemployment last week – the first of the year – led economists to pencil in a rate cut next month as a nigh-on certainty, unless quarterly inflation comes in higher than expected next week.
Today’s minutes also revealed exactly why six of the monetary policy board’s nine members voted to hold interest rates.
Uncertainty around the May monthly CPI data played a role, with the RBA concerned inflation was actually higher than what the official figure suggested, as did the pause in trade tensions surrounding US President Donald Trump’s tariffs.
“The reduced likelihood of the most severe scenarios materialising for the world economy meant that more weight could be placed on the baseline forecasts, and less on the downside scenario, than had been warranted in May when assessing the medium-term outlook,” the minutes state.
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“Members noted that the baseline forecasts already incorporated some deterioration in global economic conditions because of higher tariffs and policy uncertainty…
“These developments supported the view that the board could wait a little longer for further confirmation of the economy’s trajectory before adjusting policy again.”
They also stated the board decided to publish the unattributed votes of all members in order to improve the bank’s communication with the public.
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