The Reserve Bank has stoked expectations it is prepared to pause in lifting its key interest rate, while also flagging it will curb the telegraphing of future moves.
The RBA on Tuesday released the minutes of its 1 November board meeting, notably omitting the words “further increases are likely to be required over the period ahead”, which appeared in its October minutes and for earlier meetings.
The minutes showed the central bank was still mulling whether a 25 or 50 basis point move was appropriate. In the end, it opted for a quarter-point increase, lifting the cash rate to a nine-year high of 2.85% and marking a record seven hikes in as many months.
While not ruling out a return to larger increases, the board stated for the first time it was “prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook”.
Gareth Aird, CBA’s senior Australian economist, said the phrasing of a possible pause has now been repeated at each of the five occasions RBA officials have spoken publicly since the 1 November meeting.
“We are encouraged that the RBA is open to the idea of pausing and that they continue to reiterate this new message,” Aird said. CBA’s “central scenario” is for the RBA to raise rates 25 basis points to 3.1% next month and then stay put ahead of possible cuts next year.
Prior to the release of board minutes, investors were rating a 59% chance the RBA would make it eight rate rises in a row on 6 December. The central bank is then scheduled to take its traditional January break before its next rates meeting on 7 February.
Separately, the RBA indicated it would alter its approach to providing “forward guidance” about rates.
In releasing the results of an internal review, the bank defended its comments about when interest rates might lift from their record-low 0.1%, held during much of the Covid pandemic. Many interpreted the bank’s views as ruling out a rate rise until 2023 or 2024.
“As was the case for many other central banks during the pandemic, the RBA used forward guidance on the cash rate to strengthen the impact of its other monetary policies,” the bank said.
Providing “more specific” advice helped to reinforce other efforts to prevent the economy stalling. These included its three-year yield target, a three-year Term Funding Facility and the giant bond purchase program that tripled the RBA’s balance sheet to $650bn by February 2022.
The bank “could have done more to emphasise the conditionality of its statements about the future path of the cash rate”, it said, noting the timing of possible rises “was very prominent in media and market commentary”.
“The RBA attracted extensive criticism when the cash rate was increased much earlier than implied by the conditional time-based guidance,” it said.
Any guidance now “will generally be flexible” and typically focus on the short term. It will also stick to inflation and unemployment, rather than variables such as wages.
The issue of the bank’s communications will probably feature in the current review of the RBA, with a final report scheduled to be handed to the government by the end of March.
