From Macquarie's Brian Redican:
"Interestingly, Mr Stevens noted that "it remains...a matter for judgement by the Board as to whether that point has been reached" and that "at its most recent meeting, the Board's view was that it had not been." This emphasis on the role of the Board is particularly interesting. In our view, it is consistent with the RBA staff wanting to hike rates promptly, but some of the Board members finding the case for higher rates not yet compelling. As Chairman of the RBA Board, it would have been quite natural for the Governor to have said that "our view was that the point had not yet been reached", whereas the way the statement is phrased suggests that he is distancing himself from the decision not to hike. If, however, the Q2 inflation data remain on the high side, it might be hard for the Board to continue to resist the push for tighter policy...
In summary, then, the RBA remains completely unmoved by the recent spate of much weaker data that has emerged over the last month. As far as the RBA is concerned, the only story remains the terms of trade boom and the imminent surge in mining investment. And the RBA knows that everyone benefits from that, even if the individual families and businesses don't. As such, interest rates will have to keep rising. With this outlook, there is still a high chance that the RBA will hike rates at its August Board meeting. But in our view, this could well be the peak of interest rates in this cycle, as the mining investment boom delivers fewer benefits than the RBA is counting on, and it becomes abundantly clear to everyone that the non-mining economy is much weaker."
