RBA Minutes: A new hawkish message? - TDS

Analysts at TDS suggest that today’s release of RBA minutes from July meeting are interpreted as hawkish by markets.

Key Quotes

“Today’s RBA Board meeting Minutes for 4 July were not supposed to be a market-moving event. The Board statement at the time was not only dismissed as a near replica of the prior May and June statements, it was assessed by the bullish post-ECB-Sintra financial markets as not ‘hawkish enough’.”

“These RBA Minutes (a communication tool, not a transcript) have been interpreted as hawkish due to the surprise inclusion of “Members discussed the Bank’s work [TD: what work? Bulletin article coming up?] estimating the neutral real interest rate … The various estimates suggested … [it] had since fallen by around 150bp to around 1%. This equated to a neutral nominal cash rate of around 3½%”.”

“The original 4 July Board statement did not mention a new lower neutral cash rate (“neutral” had zero hits compared with nine in the Minutes). If the RBA referenced this discussion in the first place on 4 July, the markets may have interpreted the inclusion as joining the coordinated global central bank hawkish theme.”

“We see two interpretations of this neutral cash rate discussion: (1) 3½% being 100bp lower than the 4½% neutral rate assumed for the 2009/10 tightening cycle means the RBA could have ‘less work to do’ compared with previous cycles to get to neutral; or alternatively (2) with the current cash rate at 1.5%, means the RBA has +200bp of tightening ahead, in contrast to recent (more dovish) Fed-speak that the tightening cycle may be nearly over as the cash rate may already be near neutral. The latter interpretation (the RBA has more work to do compared with the US) has greater implications for the AUD and AU-US spread outlook going forward.”

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