RBA board minutes show it’s not ruling hike nor cut, in nor out

The Reserve Bank is steadfast it will use the blunt tool of interest rates in any way necessary to get inflation down to its target range.

The Reserve Bank’s message that it is not ruling a hike or cut in or out is set against a diagnosis of a decidedly weak economy, the latest RBA board minutes say.

At its last meeting in September, the board left the cash rate at 4.35 per cent.

While inflation is gradually easing, the RBA has weak household spending, a spluttering Chinese economy and frail productivity on its radar.

“Future financial conditions might need to be either tighter or looser than at present to achieve the board’s objectives,” the minutes, released on Tuesday, read.

The central bank says it is important for the board to stay vigilant to the risk of upside inflation.

Reserve Bank Governor Michele Bullock has batted away questions about other similar countries cutting interest rates. Picture: NewsWire / John Appleyard

“Monetary policy would need to be sufficiently restrictive until members were confident that inflation was moving sustainably towards the target range... it was not possible to either rule in or rule out future changes in the cash rate target at this time.”

Commonwealth Bank Australian economics head Gareth Aird says the telling tip in the minutes is the removal of the line “it was unlikely that the cash rate target would be reduced in the short term”.

CommBank is holding its position as the outlier, predicting a cash rate cut this year.

“The board has now back‑pedalled from its forward guidance. We consider this prudent … Overall, the minutes today read like a script from the archetypal two‑handed economist,” Mr Aird said.

Treasurer Jim Chalmers has taken every chance to say he respects the independence of the Reserve Bank. Picture: NewsWire / Martin Ollman

On one hand the RBA board considered a scenario where rates were hiked if household spending rose or supply constraints were higher than expected.

On the other hand, if households save more than expected or the jobs market weakens more than expected, a cut may be in the offing.

And there are plenty of weaknesses in the foreground: the words “weak”, “weakness” and “weaker-than-expected” appear 19 times in Tuesday’s minutes.

As well as consumer spending, China and domestic productivity, wider global trade and service exports are looking anaemic too.

The labour market will be a key indicator for the central bank. Picture: iStock

InvestorHub co-founder Ben Williamson says the sharemarket is on pins and needles.

“Market optimism that a rate cut is closer is good, but InvestorHub data indicates we won’t see this translate into an increase in the shareholder growth rate until those cuts are actually made, at which point markets will be able to begin celebrating,” he said.

“Our data also indicates that 68 per cent of investors are at a loss, so the momentum against public companies is still very much there at a time when an increased cost of living also continues to limit investors’ abilities to pounce on cheaper investment opportunities.”