RBA minutes reveal rates almost rose


Electronic Media Monitoring Service 


20-05-2008 12:15 PM


Radio National

Parl No.


Channel Name

Radio National


20-05-2008 12:15 PM



20-05-2008 01:25 PM

Cover date

2008-05-20 12:15:27

Citation Id




HALL, Eleanor


THIRSK, Adrian


Open Item 

Parent Program URL
Text online


Media Deleted


System Id


Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document

RBA minutes reveal rates almost rose -

View in ParlViewView other Segments

ELEANOR HALL: When the Reserve Bank left official interest rates on hold a fortnight ago, borrowers
breathed a sigh of relief.

But new information from the central bank reveals it wasn't a clear cut decision.

Finance reporter Adrian Thirsk has been at the RBA's Martin Place headquarters in Sydney examining
the minutes from that policy meeting.

And he spoke to me just before we came on air.

Adrian, in setting rates the RBA has to judge the economic outlook, what additional light to these
minutes shed on the thinking?

ADRIAN THIRSK: Bear in mind, Eleanor that these minutes that we've got relate to that policy
meeting a fortnight ago and at the time of the meeting when they announced their decision, there
was a statement that accompanied the decision and then just some days after that, the Reserve Bank
published its quarterly statement on monetary policy.

So we are getting a lot of information just at the moment.

These minutes, I suppose you could describe the additional input as "nuanced". That is to say that
the Reserve Bank, we know that they are seeing different directions that the economy is being
pulled in.

In the minutes they describe those as "powerful, opposing forces".

It also describes the outlook for both economic growth and for inflation as "highly uncertain". So
we know what is pulling the economy around. We have been told that but this is just some finessing
if you like of the language of the Reserve Bank in these policy minutes.

ELEANOR HALL: So if we have got "powerful economic forces", is the key to further rate rises the
commodities boom in the west?

ADRIAN THIRSK: That would be clearly the biggest stimulus that the economy is receiving at the
moment and will continue to receive and in these minutes, the Reserve Bank Board members were given
numbers that illustrate just the sort of stimulus we are getting from the commodities boom.

The dollar price of, for example, iron ore has risen 80 per cent. The coal prices are even more
extraordinary. Coking coal prices up 200 per cent and thermal coal prices up 125 per cent.

Now that is going to boost national income and I might add there is a range of other commodities as
well. Copper, aluminium and the like and this is going to boost national income. It is going to
flow through throughout the economy.

Now this is the main source of the stimulus but it is not just that that is the worry because what
happens is that if people think that inflation is going to stay elevated, there is the risk that it
could start reflecting that in wage claims and also businesses and their setting of prices might
also start to bump up prices in expectation inflation is going to be a little bit higher for a
little bit longer.

ELEANOR HALL: Now of course, the RBA left rates on hold this month but was it a close call?

ADRIAN THIRSK: This is really the revealing section of these policy minutes. What tells us that it
was possibly a near run thing is the line that "Board members spent considerable time discussing
the case for a further rise in the cash rate". In other words official rates.

It was only that it was mindful that financial conditions had tightened considerably since the
middle of last year and that in fact beyond what the Reserve Bank has raised interest rates by.
Lenders have added an extra 0.4 of a percentage point on top of that.

So it was because of that and also because of that degree of uncertainty. That high uncertainty
surrounding the outlook for inflation and the economy that the Reserve Bank thought, the Reserve
Bank board I should say, thought that it should give the current settings of interest rates some
more time to work but it will be watching very, very closely and I think that is what we have had
indicated very clearly today.

ELEANOR HALL: Finance reporter Adrian Thirsk at that RBA meeting in Sydney.