Reading through the RBA's Minutes is a fascinating exercise, and confirms my priors that (1) the RBA has emphatically dropped its once-off November 2010 experiment with "pre-emptive" monetary policy, and (2) the November cut was an equally once-off tactical political exercise to buy the RBA goodwill in the event that they have to fight a real inflation battle. (I acknowledge the risk here that they may be persuaded to do one more cut--notwithstanding Phil Lowe's claims below that policy is already "neutral"--if offshore conditions get seriously nasty.) The irony in the Minutes is that the "case" the RBA makes for keeping rates on hold is actually more persuasive, logically, than the case they make for cutting. Two facts:
1/ The RBA notes that underlying inflation picked up to above-target levels in the first HALF of 2011 (in fact, there is a clear increase in underlying inflation dating back to June 2010), and that there is a risk the incongruently low Q3 print could be "noise";
2/ The RBA is pinning 100% of its monetary policy rationale in November on a single third quarter number, ignoring the revised, and thus more reliable, first and second quarter numbers, ignoring all its previous long-term forecasts about the structural changes that will influence Aussie economic dynamics, and arguing that:
"Taken together, the information on inflation over the past two months suggested that there was less inflationary pressure in the economy than had been expected earlier in the year. While it remained possible that this was just the result of noise in the data, it was consistent with the softer growth in the non-mining economy and liaison reports that many firms felt that they had limited pricing power."
