The Reserve Bank of Australia kept interest rates fixed yesterday but, more interestingly, has decided it will release the minutes of its Board meetings with a 2 week lag. This follows the practice of most other key central banks and enables the public to discern the RBA’s assessment of the economy. Votes will not be not recorded and individual viewpoints will not be uncovered. The minutes will provide the factual assessment that guided the RBA’s decisions. In the first minutes released today from its November meeting the RBA criticised the Howard Government for its expansionary spending plans leading into the election which made the RBA’s job harder.
This will be interesting for capital market analysts trying to plot the RBA’s policy reaction function – how policies react to the state of the economy. For mainstream economists, such as me, it will help simply to be able to judge where the RBA thinks the economy is going. I was told by a former RBA Board member that the macroeconomic information assembled at Board meetings is of extremely high quality. This information must be summarised and presented in a form comprehensible to busy industrialists and businesspeople. This should be helpful to non-macroeconomics specialists.
The minutes for the November 6 meeting which did increase interest rates by 25 basis points to 6.75% are here. The role of international credit conditions was clearly downplayed – it say the outlook for the US economy as much less favourable than for Australia - with major emphasis being placed on local inflation pressures.
By the way, the economy is roaring away and growing at 4.3% in the September quarter – the highest rate for 3 years. The Aussi dollar tumbled a bit because interest rates were not increased. It is interesting to note that, at the same time, the Canadian central bank actually cut interest rates by 25 basis points because of fears over the fallout of the US subprime market.
Treasurer Wayne Swan has stated that the Labor imperative is to contain inflation. A shrewd objective since the RBA expect the inflation rate to move above the 3% maximum of its target range in the short-term and then to drop back. Lest the RBS might get it wrong Swan further remarked that we have ‘inherited inflationary pressures’. Swan is already beginning to sprout defensive politics.