The RBA today released the minutes of their Monetary Policy Meeting on April 1st. The tone of the minutes seemed to indicate that the RBA is done raising rates for now and quite possibly for the forseeable future. Below are some of the highlights:
On the domestic economy:
Members were informed that the CPI data for the March quarter, to be released towards the end of April, were likely to show inflation of around 4 per cent on a year-ended basis in the March quarter. A large quarterly increase was expected partly because of recent rises in retail petrol prices. Underlying inflation was also expected to rise in year-ended terms in the March quarter, before declining over time. The staff’s inflation forecast through to 2010 would be revised after the release of the March quarter CPI, but the preliminary assessment, based on current policy settings, was that inflation on both a CPI and underlying basis would fall by a little more than earlier thought over the next two to three years. This was premised on demand growth slowing sufficiently to reduce capacity pressures. Members recognised that a considerable degree of uncertainty continued to surround the outlook for both demand and inflation.
On the outlook for Monetary policy:
Members noted that the economy continued to be affected by a number of cross-currents. Large increases in real income were likely to flow from further increases in the terms of trade, foreshadowed by recent contract price negotiations for key bulk commodities. On the other hand, the slowing global economy and tighter financial conditions in Australia were likely to reduce expansionary forces on the economy. Members judged that, taking account of the additional rises in funding costs that banks had passed on to borrowers, the current stance of monetary policy was exerting a significant restraining influence on both households and businesses. Further, there had been some tightening in credit standards for more risky borrowers.
These developments were working to foster the moderation in demand growth that was needed to ease the pressure on inflation. Provided this moderation continued, members expected inflation to decline over time, though they recognised that there were significant risks in both directions. Members also noted that in the short term inflation was likely to remain relatively high, with both the CPI and underlying measures expected to rise further in year-ended terms in the March quarter.
The important parts are in bold. Basically the RBA sees evidence that the economy is slowing and believe that interest rate rises are having the desired restraining effect on the economy. However they also acknowledge that risks remain that inflation could get out of hand.
The RBA is essesntially hedging their bets. If things play out as they expect and the Australian economy slows then we may not see another rate rise in the current cycle. However further rate rises cannot be ruled out if inflation stays stubbornly high.