RBA clicks into neutral

The minutes from the RBA’s February meeting (unch at 4.25%) suggest that a cut was not seriously discussed at that meeting.

The key part is the second last line:

With growth expected to be close to trend and inflation consistent with the target, the Board considered that this setting was appropriate for the overall macroeconomic outlook

This is the RBA saying that policy is appropriate, given their forecasts.

Some have emphasised the last line:

if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.

But this is a mistake – if demand weakens materially, it is almost always the case that an inflation forecast will decline, and that this provides scope for monetary policy to be eased.

That they have mentioned it at all suggests that they had a slight easing bias, but with the unemployment rate having fallen since their Feb meeting, i would think that their easing bias is now more neutral.

If there are to be further cuts, they are months away (unless disaster intervenes). I would say no sooner than the RBA’s May meeting.