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RBA minutes give hope to householders -

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LISA MILLAR: The Reserve Bank has acknowledged that interest rates are squeezing Australians, and
the minutes of its last board meeting give some hope that the cycle of official interest rate rises
may be over.

The board minutes, released this morning, say that rates are exerting a significant restraining
influence on households and businesses.

And they suggest that they're already working to cut demand and contain inflation.

Economics correspondent Stephen Long has been analysing the minutes in a lock-up at the RBA's
headquarters at Martin Place in Sydney.

He joins me now.

Stephen, what's the core message from these board minutes?

STEPHEN LONG: The core message Lisa, is we are squeezing pretty hard. Rates are at a 12 year high
and that's stemming the flow of spending and credit and we hope we don't have to squeeze any
harder.

There is always a money-line in these Reserve Bank missives and the money-line in this one is that
the members of the board judged that the current state of monetary policy was exerting a
significant restraining influence on both households and businesses.

Demand is very, very strong in the economy but they've seen evidence of it flowing. They say that
their liaison with retailers shows that domestic demand is slowing and that sales were flat in the
first three months of this year and so a significant level of rates pain both with the Reserve Bank
rises and the additional increases the banks and other lenders have imposed to cover their
increased cost of funding from the global credit crunch.

That means that the Reserve for now, will sit on its hands.

LISA MILLAR: What happens, though, if the next lot of inflation figures go up or are higher than
expected?

STEPHEN LONG: It's going to take a doozy of a reading on inflation when the Consumer Price Index
comes out on April 23rd to make the Reserve Bank move.

They acknowledge in the board minutes and this is the discussion from around the table on the 1st
April when they last met, that inflation is going to rise. They are looking at four per cent annual
inflation rate in those minutes.

They are looking at inflation being high but notwithstanding that, they believe that, on the
current settings, it should start to fall and fall a little bit more than they previously judged in
the coming months after that so they are reasonably confident, reasonably confident that they won't
have to move again. That suggests that they'd need a reading of above one per cent on underlying
inflation in the quarter to move.

LISA MILLAR: Well, looking at it globally, the IMF is predicting a recession in the US - some would
suggest they are already there - and it is also suggesting a one in four chance of a global
recession - so how worried would the Reserve Bank board be about that?

STEPHEN LONG: Not too worried. They're using the language a "mild recession" in regards to the US
and they were privy to the IMF's analysis when they held their board meeting and that seems to be
their view which I note is actually significantly more gloomy than the Reserve Bank was for a long
time when they thought that US would basically come through without suffering a recession.

So they are a little bit worried but on the other hand they think that demand is still going to
remain pretty strong out of Asia and they see a significant inflation pressure coming through from
rising terms of trade because they are expecting that the Australian miners are going to get big
contract prices for the commodities we export and that is going to boost Australia's national
income so that works to make them a little bit more toey.

So the Reserve Bank still sees the glasses half full rather than half empty when it comes to the
world economy. Notwithstanding the clear and present dangers that I think everyone has to
acknowledge.

LISA MILLAR: Stephen, there were some economists this morning who were talking not only about rates
staying put but actually coming down - can you glean the prospect of that from the minutes of this
board meeting?

STEPHEN LONG: You can't read too much hope of rates coming down anytime in the near future from
these board minutes. They acknowledge that there are cross-currents moving in different directions
and risks on either side but look, I wouldn't be betting on rates coming down.

LISA MILLAR: Economics correspondent, Stephen Long, thank you.