From the Deputy Governor again (ping to Stephen Koukoulas):
"From time to time over the past year, the Bank has considered whether further restraint was required, but on balance concluded that existing policy settings remained appropriate, particularly given the restraint also being applied by the high exchange rate. At its most recent monetary policy meeting, the Board judged that the recent financial volatility could weaken the outlook for demand, and hence may, in due course, act to dampen pressure on inflation. On this basis, the Board judged that it was prudent to maintain the current stance of monetary policy. In the meantime, financial markets seem to have concluded that the risks are weighted towards the Australian economy weakening sharply and, taken literally, seem to be pricing in a reduction in official interest rates towards the unusually low levels reached after the global financial crisis. There are technical reasons why current market pricing may not be giving an accurate picture of interest rate expectations. Nonetheless, markets do seem to have reached a pessimistic assessment and this appears to be based mainly on the assumption that weakness in the US and Europe will flow through to Australia."
