The RBA was surprisingly hawkish in its outlook in the Minutes today. Here is a summary:
"The major news in the domestic economy had been that underlying inflation had continued to fall, in line with the Bank’s expectations, and was now below 3 per cent. Were it not for the effect of the rise in tobacco excise earlier in the year, CPI inflation would have remained below 3 per cent. Employment had continued to grow solidly but consumer spending remained subdued, even though confidence was high. Credit growth remained soft and the housing market had stabilised after the surge in prices late last year and earlier this year. Indicators of business investment remained strong. The staff forecast continued to suggest that GDP growth would strengthen in 2011 and 2012 to above-average rates. Accordingly, even though underlying inflation was expected to remain around 2¾ per cent over the next year, it was forecast to pick up a little thereafter.
Over late 2009 and early 2010, the Board had removed the unusual degree of monetary accommodation that had been put in place during the global financial crisis. By May, interest rates on loans to households and businesses had returned to around average levels. In the subsequent two months, with economic growth close to trend and inflation expected to decline to the target range later in the year, the Board had felt comfortable with the existing level of interest rates, particularly in an environment where there was a significant degree of market volatility.
Developments over the latest month had not materially changed the Board’s assessment. The inflation data released during the month were in line with the Board’s expectations for a decline, and the outlook for economic growth had not changed. Markets had settled somewhat, but there was still more uncertainty over the global outlook than there had been earlier in the year. The Board therefore judged the existing level of the cash rate as still appropriate, and decided to leave it unchanged for the time being, pending further information."
