Minutes reveal hot debate
(21 October 2009 – Australia) Minutes from the Reserve Bank of Australia’s bank board meeting reveal the decision to lift the official cash rate by 0.25 percent to 3.25 percent was not made lightly.
Two weeks ago the decision was made to lift the official cash rate after a strong debate took place between board members about whether the inflation risks of leaving rates unchanged outweighed the economic risk of raising the rates.
The ‘considerations for monetary policy’ minutes noted that the recent strength in the domestic economy was possibly due to the greater than expected impact of the fiscal stimulus.
The question at hand was whether the activity would slow as the stimulus faded.
It was felt by the members that the strengthening of the Australian dollar would act as a contractionary influence on activity and help contain inflation.
Members discussed the risks that a move at this meeting would be premature. Key among them was that economic prospects for most of the developed world were still uncertain and the possibility of another downturn in some countries could not be ruled out.
While such an outcome would no doubt be detrimental to confidence, including in Australia, members noted, however, that prospects for Australia were being affected significantly by developments in the Asian region, which was doing relatively well despite weakness in the advanced economies.
Members also noted that a sizeable gap had opened up between the performance of Australia and other developed economies, and in the end the Board had to be mindful of local conditions in setting policy.
The ‘considerations for monetary policy’ minutes noted that the recent strength in the domestic economy was possibly due to the greater than expected impact of the fiscal stimulus.
The question at hand was whether the activity would slow as the stimulus faded.
It was felt by the members that the strengthening of the Australian dollar would act as a contractionary influence on activity and help contain inflation.
Members discussed the risks that a move at this meeting would be premature. Key among them was that economic prospects for most of the developed world were still uncertain and the possibility of another downturn in some countries could not be ruled out.
While such an outcome would no doubt be detrimental to confidence, including in Australia, members noted, however, that prospects for Australia were being affected significantly by developments in the Asian region, which was doing relatively well despite weakness in the advanced economies.
Members also noted that a sizeable gap had opened up between the performance of Australia and other developed economies, and in the end the Board had to be mindful of local conditions in setting policy.
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