Tuesday, August 5, 2014

Boring as the new black. No surprises from Reserve Bank with "on hold" rates decision.

Even by Reserve Bank standards, it was eye-glazingly dry and predictable document.

But of course no one was surprised with the outcome given that money markets had factored in a zero percent chance of rates excitement.

In keeping the cash rate on hold at the historic low of 2.5 percent, governor Glenn Stevens convinced any doubters that boring is - and probably has always been - the new black.

Underscoring a year of rates stability, Mr Stevens used a post-meeting statement all but identical to last month's version to say that any movement in rates will be telegraphed to the market over a reasonable period.

The many tea leave readers - market economists, academics, journalists - have learned through trial and error that the most telling information can sometimes be found right at the end of the governor's statement.

Today's statement did not disappoint when it became apparent that the final two paragraphs matched last month's word for word:

                                                              August RBA Statement source: Reserve Bank of Australia

                                                               July RBA Statement source: Reserve Bank of Australia

A few market economists had pondered subtle or micro changes to today's statement, even the small possibility that the reference to "period of stability" might be removed.

But now we know. One of the most bland statements from the RBA sets the scene for a continuation of Glenn Stevens' "no surprises" policy.

Mr Stevens flagged the board's intention to take a gradual approach to winding rates higher when he spoke in Hobart in July:

"Long before any thought were to be given to an increase in rates, it would probably be sensible for the Board to cease references to a future ‘period of stability’ and revert to the more normal formulation that the stable policy settings ‘remained appropriate’ or something like that. 

"Such an evolution would amount to no more than a recognition that a ‘period of stability’ had in fact already been occurring and wasn't entirely in the future, but wouldn't imply any particular change in the Bank's views about the future course of policy.

"It should go without saying that those seeking to understand our thinking should, in any event, look not just at the wording in the post-Board statement, nor just that in the minutes, but also at the whole analysis of the economy and the outlook in the regular Statement on Monetary Policy."

Taking Mr Stevens at his word, Friday's quarterly statement will be an important document in getting a flavour of where the RBA sees the economy heading.

But before that, Thursday's official jobs numbers from the Bureau of Statistics will be the next important factor for pundits who are united pointing to a flatlined jobless rate of six percent.

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