In summary, the RBA maintained its previously held views on the jobs market, inflation and the exchange rate:

"Labour market conditions had remained subdued and it was likely to be some time before unemployment declined consistently. Spare capacity in labour and product markets was likely to continue to limit domestic inflationary pressures, ensuring that the inflation outlook remained consistent with the target notwithstanding some temporary upward pressure from the depreciation of the exchange rate since early in 2013.

"Despite the recent depreciation of the exchange rate, the Australian dollar remained above most estimates of its fundamental value, particularly given the further declines in key commodity prices over the course of the year to date. As a result, the exchange rate was offering less assistance than would normally be expected in achieving balanced growth in the economy."

Global direction

In its closing paragraph, the RBA was keen to highlight its easy current policy setting, and inserted "accommodative":

"The board judged that the current accommodative stance of monetary policy continued to be appropriate to foster sustainable growth in demand and inflation outcomes consistent with the target over the period ahead. Members considered that the most prudent course was likely to be a period of stability in interest rates.

Despite still tipping rate hikes in second-half 2014, Westpac's chief economist, Bill Evans , said, "These minutes are slightly more dovish . . . The growth outlook is a little less optimistic, while there appears to be less hysteria around the potential risks associated with the housing market. Indeed, there is no implication of a substantial intervention by the authorities."

Last week also provided plenty of guidance about other central banks' plans about the future direction of monetary policy.


The US Federal Reserve's FOMC minutes showed members of the Committee were concerned inflation was still too low:

"Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations . . . Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered."

As such, the market was surprised as the minutes didn't show any material change in language or any real change in the Fed's direction. While helping to befuddle investors, it did succeed in pushing back expectations of any Fed rate hike well into the second half of 2015.

Meanwhile, European Central Bank president Mario Draghi was busy talking up additional quantitative easing to stimulate Europe's moribund economy. Dr Draghi said, "Other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds."

Cuts still on the table

Whereas the Fed is concerned prices are not rising fast enough, the Bank of England appears to have the opposite problem. While the Monetary Policy Committee (MPC) voted 7-2 to keep the benchmark interest rate at 0.5 per cent – a record low – some of the majority began to raise concerns about potential inflation pressures. The MPC minutes stated there was a "material spread of views on the balance of risks".

However, the minutes were in stark contrast to Bank of England governor Mark Carney's comments that painted a downbeat portrait of the UK's economy. There were also lower Bank of England forecasts that caused investors to push out their timing of the bank's first interest-rate increase.

And last but not least, the People's Bank of China (PBOC) surprised investors at the weekend with its first rate cut since July 2012. The PBOC dropped its one-year lending rate and its one-year deposit rate was by 40 basis points to 5.6 per cent and 25 basis points to 2.75 per cent, respectively.


With some of the major central banks of the world pushing back any interest rate hikes, looking to step up quantitative easing or actually cutting rates, how likely is it the RBA will want to swim against that tide when the Australian economic performance is patchy at best?

Despite the vast majority of economists' forecasts to the contrary, the RBA is holding rates steady for a while (it last cut rates in August 2013) and is not likely to be thinking of an increase.

Indeed, I think the RBA's minutes read more dovish than I was expecting. As such, I still maintain my view the RBA has one more rate cut to go, most likely in the first half of 2015.

*Mark Bayley is Credit Strategist at Aquasia, an independent corporate advisory partnership.

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