The RBA yesterday made a subtle change to its post meeting statement that’s been missed. In statements before last month’s cut it has said the following:
The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.
In May it said:
The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today’s meeting the Board decided to use some of that scope.
And yesterday it said:
At today’s meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.
Scope for further easing has become “some scope”. That is a very clear signal that the RBA sees itself running out room to the downside, with scope for one more cut.
It’s a a possible outcome, especially if the US recovery accelerates, pulling down the Australian dollar by itself. But the balance of risks still suggests that they will be wrong about the strength of economic growth, just as they have been for two years, as commodity prices continue to fall.
