Latest NewsRates Hike Not Just Yet, Say AnalystsThursday, 22 September 2016

The minutes of the latest monetary policy meeting do not offer any compelling reason to expect an interest rate hike in October.

The board of the Reserve Bank of Australia (RBA) held its monthly meeting on September 1 and ended with the decision to leave the overnight cash rate, the benchmark for monetary policy in Australia, at its 49-year low of three per cent.

There was no real change of emphasis between the terse statement issued by RBA governor Glenn Stevens at the end of that meeting two weeks ago and the more detailed statement on Tuesday.

In fact the basic message was the same as it was in August.

"As at the previous meeting members noted that the policy decision in the near term involved balancing the risk of over-staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand.

"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," the RBA said in the minutes.

It is always tempting to examine the RBA's pronouncements for any subtle changes of emphasis that could be seen as evidence that the RBA's thinking might have changed.

This can be taken too far, though.

Sometimes, if you look hard enough you can see things that aren't actually there.

So perhaps the use of the term "meetings ahead", was of no consequence.

On the other hand, it could be a deliberate attempt to play down expectations of a rate hike in October 6, when the board holds its next monetary policy meeting.

That interpretation would be consistent with the deliberations of the board on September 1.

The minutes stress the uncertainties surrounding the outlook for both the world's economy and Australia's.

The board pondered the evidence showing the world economy was "continuing to improve", but whether the improvement would turn out to be durable was a big unknown.

"An important question for members was whether the global economic improvement would be sustained, or whether it was mainly a reflection of the strong macroeconomic stimulus that had been applied over the past year and might in due course fade," the RBA said in the minutes.

For the local economy, the RBA applauded the rise in business investment in equipment in the June quarter but worried that it might have been mostly the result of tax breaks simply bringing forward spending that would have occurred anyway.

The RBA board was also conscious of another impediment to growth.

Although financial markets were functioning better, with the "extreme risk aversion" in the wake of the Lehman Brothers collapse a year ago having dissipated, "banks, corporates and households in many countries still faced significant balance sheet adjustments", the RBA said.

Not only was the durability of the improvement in economic growth in doubt, but the weak labour market was causing "clear signs of wage moderation", which the minutes said would "help to contain inflation in the near term".

At last measure the underlying inflation rate was 3.9 per cent, well over the two to three per cent medium-term target adopted by the RBA in 1993.

So there was no way the RBA was going to pass up the opportunity to restate its commitment to keeping in mind the need to control inflation, which it did.

But if lower inflation is in the pipeline, the incentive to hike rates is commensurately less.

The RBA also restated its expectation that it would, eventually, get around to pushing the cash rate higher.

If the economy behaved as expected, which it was doing, "the Bank would in due course need to adopt a less expansionary policy stance".

But there is nothing in the minutes of the latest meeting to suggest "in due course" might be as soon as October 6.

Supplied by AAP