Today's RBA Minutes offered ample ammo for bulls and bears (or hawks and doves), and the AUD sold off a little after the release. For mine, there were some very important insights.
First, the RBA has in the last couple of Minutes massively ramped up its references to inflation pressures building around the world (and particularly in most of Australia's Asian trading partners) and, crucially, noted in these Minutes that in developed countries there had been "a pick-up in measures of inflation expectations, especially over the next year." This is obviously a risk for Australia, where inflation expectations are already above-average according to the Westpac-Melbourne Institute survey.
Second, the RBA subtly raises the spectre of Australia importing inflation from China by noting that "Renminbi-denominated export prices had been increasing since late 2009, after an extended period when they had been flat or declining." This a key risk to their outlook that I have raised regularly here, and it is the first time I have seen the RBA mention it in the Minutes. The point is that if the AUD and TWI stop appreciating, or start depreciating, we have new inflation problems to face (we import more from China than any other country).
Third, the RBA did not make much at all about the AUD/TWI appreciation and its impact on inflation or monetary policy, which it could have done.
Fourth, the RBA changed quite materially its final sentence to this: "Members therefore did not see a case to change the cash rate." My emphasis is on the word "case".
This contrasts against the previous Minutes where the RBA concluded, "Members judged that this mildly restrictive stance of policy continued to be appropriate. The Board therefore decided to leave the cash rate unchanged."
In short, the RBA is highlighting that it needs a "case" to change rates. And there are two very clear near-term "cases" on offer: a high core CPI print next week and/or further falls in the unemployment rate in the next two months, all else being equal (a big caveat these days).
Having said that, I am pretty sure the Government will be doing everything humanly possible to delay rate hikes in its May Budget.
