The Minutes from the RBA’s monetary policy setting meetings usually make interesting reading. Here are some extracts from their meeting held on 6 December, which resulted in official rates being cut from 4.5% to 4.25%.
“In the global economy, the recent news had been mixed. The data for the US economy had been better than in earlier months. China’s growth had been slowing, as policymakers there had intended, and most other economies in Asia had also slowed as trade in Asia was seeing some effects of the significant slowing in economic activity in Europe. Nonetheless, growth rates in Asia remained solid. The news on Europe, however, had been notably weaker and it remained unclear as to how the current situation would be resolved. It seemed highly likely that the sovereign credit and banking problems would weigh heavily on economic activity there over the period ahead, and there was a non-trivial possibility of a very sharp contraction. Global financial markets had experienced considerable turbulence, and financing conditions for banks had become much more difficult, especially in Europe. Overall, members concluded that growth in the world economy was likely to weaken over the coming year.
“Domestically, some of the recent economic data had been more positive than a few months earlier, and overall growth was consistent with trend. However, conditions varied significantly across sectors. Investment was picking up very strongly, and measures of household and business confidence had improved in recent months, though liaison reports suggested consumers remained cautious. The unemployment rate had been broadly steady, at a little over 5 per cent, after rising around mid year. The financial side of the economy remained relatively subdued, with soft credit growth and declining asset prices.
“Against this background, the Board considered the question of whether a further reduction in the cash rate would be appropriate following the reduction in November. On the one hand, there had been further evidence that a major investment boom was in progress and the overall economy was expanding at a pace broadly in line with trend. Australia’s main trading partners were also still recording solid growth. This did not suggest any strong need to cut interest rates. Against this, developments in Europe continued to pose downside risks to the global economy and, consequently, also to Australia. These risks had, if anything, increased though the timing and magnitude of any effects that might flow from them remained very difficult to predict. “
