An excellent summary from UBS's rates team on the RBA's evolving position. To be clear, I don't think the RBA has any firm position right now, and will flex to what the world tells it, and will calibrate policy in response to any change in market rates (independently effected):
The RBA is digging in at 4.25%...The March minutes showed that the bank has lost most of its easing bias, and the Bank believed interest rates at "average levels" were appropriate. The European and global outlooks have been upgraded in both meetings.
Productivity a concern, but not the RBA's mandate...Since the March meeting, the weakest data release was a tepid (+0.4%q/q) GDP figure. Gov. Stevens faded the data in his speech yesterday, appealing to a broader range of indicators that point to a domestic economy running close to average. He then signalled loudly that monetary policy cannot affect trend growth, fading any likelihood of monetary stimulus. In other words, annual growth rates of ~2.4% (annualised average of the last two quarters) may be close to trend after all.
The scenario for monetary stimulus to enter is drastic...The March minutes clarify the scenario that warrants "scope for the Bank to ease policy." The scenario requires "a sharp slowdown, particularly in East Asia" with "significant implications for commodity prices and demand for Australian exports," or a "major flight from risk in global capital markets."
Demand and supply factors both point to a hold...We see the RBA's demand side story as one that doesn't require a rate cut, and their supply side story as one that doesn't afford one.
