Here is Westpac's summary:
"With market pricing only giving a probability of 20% for a rate hike in June and 60% by August the Governor could have used the key section on "Considerations for Monetary Policy" to water down the very strong wording in the Statement on Monetary Policy (SoMP) which printed on May 6. However the wording used in these minutes remains consistent with the SoMP. Recall the wording used in October last year prior to the rate hike in November: "If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.". The words used in these minutes are "If economic conditions continued to evolve as expected higher interest rates were likely to be required at some point if inflation was to remain consistent with the medium term target." Readers will observe that these are almost identical words and must therefore be interpreted as giving a very strong chance of a rate hike next month.
Not surprisingly the key themes set out in these minutes are consistent with the SoMP released three days after this Board meeting. Of most interest to us is that growth is expected to be at or above trend underpinned by a boom in investment and the income boost from the very high level of the terms of trade. The key information which has changed since the April Board meeting has been the further surge in the terms of trade which are noted in these minutes to be expected to rise by around 10% over the March and June quarters, and the recovery in business credit growth. The minutes specifically take note of the likely impact on growth of the appreciation of the exchange rate and the significant fiscal consolidation. Since the Board meeting the Government has announced a fiscal consolidation in line with expectations and the Australian dollar has actually fallen from 108.45 to 105.50.
Conditions in the global economy continue to be described as solid despite the qualifications from the Japanese disasters.
The key theme from the SoMP that, based upon the market's expected interest rate path inflation was likely to print above 3% near the end of the forecast period is repeated in the key "Considerations" section of the minutes.
The minutes also address the ongoing issue of households' behaviour and the labour market and recognise that developments in these sectors will be important. However, this is qualified for "over the next few years" and the tone of these minutes suggest, consistent with the SoMP, that the Bank sees these risks to the upside for inflation."
