RBA Minutes - next move up but timing a "matter of judgement"

The minutes to this month’s meeting were very instructive in their intellectual obfuscation. We don’t mean this in the sense that they are intentionally meaning to deceive or conceal the true meaning but rather that there seems to be something in the minutes for both the rate hikers and rate leavers like us.

For the hikers the fact that the minutes said the outcome of the pro and con arguments for a move this month were “finely balanced” and that the Board can’t wait forever to “see whether risks materialised” tells us that the November meeting is definitely live. This is particularly given that the concerns occupying the mind of the Board and the Bank are those related to factor utilisation of which last month’s 55,800 rise in employment and unemployment rate of 5.1% suggest some tightness.

Please don’t think we have changed camps but we are no good to you or ourselves if we blindly ignore the messages.

But equally strong in the minutes was the message that given their concerns about the medium term outlook for the Australian economy and given their expectation that the next move in rates is up then the fact they held fire speaks through a megaphone.

With regard to the strength to the labour market outlined above they tempered it a little with a comment that Bill Mitchell from Newcastle University would have been proud of. That is, that "business surveys suggest that most firms were not experiencing significant difficulties finding labour." Mitchell continues to argue, and ABS data supports, so this one quote sort of supports that there is a vast swathe of under-employment in Australia at the moment which rings true in this context. Which does mitigate the bearish tone earlier, or at least buys the Board time. 

Equally to the extent that the AUD/USD rallied after the minutes were released we’d suggest that the rate bears take note of the explicit comment about the impact of the rising dollar on activity within the economy. We always think in MCI terms even if it is not explicit and we believe so does the RBA otherwise why would they use the AUD to act as an automatic stabiliser  so often and why would other nations be now seeking to devalue their way out of their economic malaise. It’s because monetary conditions are not just interest rates, the currency plays a role. To this end the RBA said “the rise in the exchange rate would, if it continued, effectively be tightening financial conditions at the margin.” At close to USD 1 there is at least one if not 2 tightenings in that level of the exchange rate since the last SoMP.

The RBA also mentioned our concerns about households and credit and wondered, as did we all, at the anecdotal evidence on retailing which seems at odds from the last GDP figures. All in all the RBA still expects rates to move higher but its a matter of judgement when.

With consumers where we think they are we hope they wait till 2011.