- Today's released RBA minutes confirm interest rates are likely to remain unchanged for some time

- The RBA last hiked in November, by 25bp to 4.75%

By Greg Peel

It's not really new news given RBA chairman Glenn Stevens has already aired his thoughts to the public via parliamentary testimony, but today saw the release of the minutes of the February monetary policy meeting.

The previous meeting was two months prior but, leaving the weather aside for a moment, not much has changed since.

Emerging market demand continues to boom and the developed world is also getting back on its feet. This is pushing up Australia's terms of trade at a time when investment in the resource sector is rising fast and unemployment is low. Under any normal circumstances, inflationary pressures should be building. Indeed, in November the RBA was sufficiently worried about such pressures to make a preemptive strike on inflation by raising the cash rate to 4.75% – a level it considered just to the restrictive side of neutral.

But these aren't normal circumstances given the reverberations of the GFC. What the RBA hadn't counted on was the counteractive disinflationary influence of shell-shocked consumers and borrowers who have since seen the error of their ways and stayed out of stores and away from banks and credit card providers. Debt bad – savings good. This trend is not showing any signs of turning around in the short term and hence Australia's two-speed economy is balancing itself out to relieve medium term inflationary pressure.

On that basis alone, the RBA currently sees no reason to tighten monetary policy further in the foreseeable future.

Nor does the RBA feel the weather-related disasters in the interim period will meaningfully impact on this view. While tragic for many, there is again a balance of lost output and fresh spending on reconstruction to counteract on GDP growth and inflationary pressure.

In marking its first board meeting of the new year, the RBA decided to recap. The minutes recall that the RBA has steadily removed the stimulus put in place during the GFC and by late 2010 had moved to a slightly restrictive stance. This was appropriate at the time and remains appropriate now.

Thus importantly, the RBA believes that lower than expected inflation outcomes provide “additional time for the Board to asses at future meetings the evolving balance of risks”.

This suggests the board now feels it can relax a bit after the turbulent period of the last three years. Then it was an every day proposition, a matter of keeping a very close eye on data, and a matter of being ready to strike swiftly and decisively. Now we are getting closer to what one might call those “good old days” pre-GFC. Monetary policy decisions do not need to be made on the hop. Rather, the RBA can assess the “evolving balances”. Evolution is a slow process, not a month-to-month process.

No rate rise ahead for some time.

Read the minutes here.

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