– The RBA Board minutes essentially sing from the same economic song sheet as the RBA Statement on Monetary Policy (SMP) released on 10 May, and leave the door ajar for more policy easing down the line if required.
– In doing so, the central bank notes that, while the economic growth is expected to remain below trend over 2013 as the high AUD and fiscal consolidation continue to weigh on GDP growth, the effects of previous reductions in interest rates were still working their way through the economy.
– The RBA also noted that, while conditions in the housing market and consumer spending appeared to be picking up speed, credit growth and conditions in the business sector (outside mining) remained very subdued.
– The RBA remains very comfortable and relaxed about the inflation outlook, and notes that the “inflation outlook, if anything, had been revised down slightly”. Low inflation gives the RBA the scope to cut rates further to support demand.
– On this score, we think that the RBA will likely act on its ongoing modest easing bias and cut rates again by 0.25% to 5½% in early August – after the June Qtr CPI release in late July reveals still very benign underlying inflation.
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Commonwealth Bank