Today's RBA minutes from the October Board meeting, provide sufficient rhetoric to suggest Glenn Stevens is content to be patient with the timing of rate hikes. February 2010 remains my favoured month for the first rate rise. October has been an outsider for the first hike, and nothing has changed today.
Whilst November and December cannot be ruled out completely, money market futures pricing is moving away from that outcome. For example, the November IB contract is 9685 bid or 3.16%, following the release of the RBA minutes. Half way to a 25 point rate hike clearly suggests current market dichotomy.
Points made by the RBA, to consider later rather than sooner.
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Improving economic conditions. There was therefore a question about the sustainability of the recovery, in particular whether the growth that had been seen was largely a one-off effect of stimulus measures or if there was also a fundamental improvement.
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Consumer Sentiment and Household Spending. Liaison with retailers suggested that household spending had softened somewhat in July but had been better in August.
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Business Investment...in the June quarter indicated a strong rise in spending on plant and equipment, with a sharp increase in spending on a wide range of capital goods, including cars. However, this mostly reflected the bringing forward of spending to qualify for tax allowances
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Bank Lending. Banks had raised interest rates on their fixed-rate lending and members noted there was market speculation that variable mortgage rates might also be increased.
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Inflation. Members were reassured by the clear signs of wage moderation in the economy, as this would help to contain inflation in the near term.
Here is the link to the RBA minutes.
http://www.rba.gov.au/MonetaryPolicy/RBABoardMinutes/2009/rba-board-min-01092009.html
Summary.
There can be no doubt that interest rates will rise in the near term. However, the release of today's minutes give comfort that rate hikes will not commence until early 2010 and not later this year.
' The meeting concluded that the balance was best struck by leaving the cash rate unchanged for the time being, pending further evaluation of incoming information at future meetings. ' (????)
With kind regards,
John Craig
Phone: (612) 8243 3526
Fax: (612) 9255 7492
Mobile:(61) (0) 416 96 7777
jcraig@bellcommodities.com.au
