RBA Minutes: Step up in the exchange rate rhetoric - TDS

The RBA minutes were released today, and we spied a step up in the rhetoric in relation to the exchange rate, points out the research team at TDS.

Key Quotes

“We ploughed through all the 2017 policy statements and minutes and the RBA today added “material further” to the usual ”appreciation would slow down the expected pickup in growth and inflation”.”

“The RBA timeline and AUD at the time is in the attached, but the summary is:

From February to July, the RBA claimed “The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment”.

In August, when the working AUD assumption for the RBA forecasts was lifted to $US0.80, the RBA noted that the higher AUD “It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.

• The minutes added “a further appreciation of the exchange rate….”

In September the RBA repeated the August message word for word, including adding “further” in the Minutes.

For October, the RBA repeated “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

• Today’s Minutes, however, added “A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

“Conclusion: At the risk of over-analysis, we conclude that the RBA could be comfortable with the exchange rate at current levels of $US0.78-79. This cannot be a surprise if the RBA's own August projections achieve above trend-growth and inflation back in the band with a working AUD assumption of $US0.80. Perhaps the AUD needs to be $US0.83+ before the Bank downgrades its growth and inflation projections.”