RBA Tracker

Analysis paralysis

Today’s Minutes of the RBA Board meeting didn’t really add anything new to the debate about the outlook for the cash rate.

The Minutes reaffirmed that the Board deliberated between an immediate increase in the cash rate and keeping it unchanged. The “on-hold” decision obviously won out, with the Board noting that this “would best balance the risks to both inflation and the labour market”.

The Board appears to have little conviction in its views - and those of the RBA staff - about the economic outlook. Indeed, the Minutes contained 13 references to “uncertain”, or derivatives thereof, and noted that it was “appropriate to continue placing somewhat greater-than-usual weight on the flow of data, relative to the forecasts, when there were uncertainties about the persistence of supply shocks”.

Given that paralysis, the best outcome has been viewed by the Board to do nothing.

This is not a criticism of the Board. The current juncture is genuinely tricky. We have been of the view that the cash rate should have previously been increased by more than it was given it is only a little above estimates of ‘neutral’ (see chart). But the fact is that it wasn’t. It has been at 4.35% since November last year.