Confused economists on RBA minutes

Here’s wrap of delusional comments on today’s RBA minutes via the SMH blog

BC Capital Market’s Su-Lin Ong:

• The August RBA minutes shed limited new light but uncertainty appears to have stepped up, hinting at a central bank that is likely to sit on its hands for even longer.
• As we have often argued in the past, the RBA tends to sit on its hands when it is uncertain, awaiting further data and developments. This appears to be very much the case well into 2015.

Michael Workman, CBA:

• We still believe that the question the RBA will be likely to debate early next year is “does it make sense to keep cash rates at record lows in an economy running near trend growth and where the desired growth transition is underway?” We will have to wait for the next few jobs market figures to determine whether the July unemployment rate of 6.4% was an aberration or the new norm. If the unemployment rate falls back to 6% we would see it as supporting our argument.
• Our somewhat ambitious call remains in place. We expect the RBA is likely to begin “normalising” monetary policy in early 2015. The next major parts of the economic jigsaw are the second quarter Capex survey and, in the following week, second quarter GDP. Both have some downside risk.

Felicity Emmett, ANZ Research:

• Of most interest were the comments about easier financial conditions. Board members noted there had been a “noticeable easing in financial conditions” since the beginning of the year, pointing out the fall mortgages rates. Both 3-year fixed rates and standard variable mortgage managers’ rates are down 20bps over the past six months, while average lending rates on business loan have also edged down. This effectively amounts to a quasi-monetary policy easing, and suggests that market pricing of a 45% chance of a rate cut by early next year looks stretched.
• From our perspective, we continue to expect that the Bank will stay on hold until May next year, after which time they will gradually increase the cash rate by 100bps over the year.

Ben Jarman, JP Morgan:

• It is clear that the Board would clearly prefer not to have to ease policy again, and some combination of lower AUD and movements in market rates are the hoped-for support mechanisms.
• The labour market data in particular over the next few months will be important in dictating whether the Governor has the patience to wait for these external adjustments to occur.

And from Matthew Hassan at Westpac:

• As we noted with the August SoMP there is an air of nervousness in the Bank’s recent communications. However, it is a very long way from acting on any of its concerns. Specific policy guidance has remained pointedly unchanged without even alluding to a discussion of options or even a theoretical scope for potential change (recall the Governor’s comment in a speech in early July that “we still have ‘ammunition’ on interest rates”).
• With signals around consumer sentiment, retail sales, business confidence and housing improving materially in recent weeks, the near term outlook is probably already a little more upbeat than the Bank put forward in its most recent forecast. While there are clearly still risks – the labour market for example provides some counter-evidence – no shift in policy stance looks at all imminent. As such we remain comfortable with our view that rates will remain on hold through 2014 and well into 2015 prior to the first hike in August.

I still see another cut before Christmas as consumer spending disappoints, net exports dry up and the Budget runs into higher than forecast deficits necessitating more spending cuts. Further out, if we ever raise rates again it will be very brief!