RBA: Upside And Downside Policy Scenarios Discussed In September

RBA Governor Bullock said in September that the discussion format had changed to reflect that the Board isn’t ruling “anything in or out” and so it focussed on scenarios that could shift rates in either direction. The minutes give further details on these scenarios. The RBA was firmly on hold and a rate cut before February seems unlikely.

• “Not enough had changed” since the last meeting to warrant altering the level of restrictiveness. The current rate “best balanced the risks to inflation and the labour market”. As a result, policy “would need to be sufficiently restrictive” until the Board was “confident” that “inflation was moving sustainably” towards target.
• In terms of scenarios, the Board considered stronger consumption growth due to more robust household disposable income. This would strengthen the labour market resulting in inflation returning to target slower than expected, requiring policy to remain restrictive or tighten further.
• More constrained capacity was also discussed and would need rates to be “noticeably higher” than assumed in August to reduce inflation.
• If financial conditions prove not restrictive enough to bring inflation to target, then tighter policy may be needed. This was “plausible” due to recent easing in markets and increased credit growth.
• Policy could be “less restrictive” though if the economy was “significantly weaker than expected” from higher household saving and significant uncertainty, or if “inflation proved less persistent than assumed” due to a sharper fall in rents and commodities reducing costs. 
• The RBA was clear that it doesn’t need to follow other central banks as Australian inflation is higher, labour market stronger and policy less restrictive. The AUD can also adjust.