The currency and interest rate markets got the message from the December Reserve Bank board meeting minutes issued yesterday.
The dollar fell after the minutes were issued, while the odds of a rate rise in February eased: the odds are still even money, but there’s now an understanding that the markets shouldn’t jump to conclusions so far ahead of time.
Anything could happen and the minutes reflected this with a more balanced and nuanced discussion of the economy that left the distinct impression that the central bank could very well take a rest from lifting rates in early 2010.
Of course the minutes issued this morning, were for a meeting held on December 1, well before we learned of the solid rise in jobs in November, strong home building finance figures, still firm consumer and business confidence and a reasonable outcome for retailers in October.
But if you’re a punter or sweating on a 4th rate rise, I’d be wary of accepting completely the equivocating tone in the minutes because of one comments about the strength of retailing:
"Members discussed trends in retail spending.
"Although data for the September quarter had shown a small fall in the volume of sales, and recent liaison suggested mixed trading conditions since then, this had followed very strong growth in the first half of the year, supported by the stimulus payments to households.
"Motor vehicle sales to households in October had been above the low levels seen earlier in the year, and liaison pointed to strong sales in November."
In November’s minutes, the discussion mentioned that retail sales in October have been "mixed" now they are strong.
Car sales in November and December will be strong because of the ending of the last lot of tax breaks on December 31.
In fact apart from the discussion of November’s retail sales, the meeting could have been talking about an economic backdrop that will be highlighted by a modest rise in September quarter growth in the September quarter national accounts due out today.
Whether we see the post-meeting data flow changing the tone of the bank board’s discussion in early February, won’t be known until the next set of minutes are published.
But we could get a taste when deputy Governor Roc Battellino speaks in Sydney today, 30 minutes after the GDP numbers are released at 11.30 am.
His will be the last public comments from the central bank until the post meeting statement on February 2 and then the first Statement of Monetary Policy for 2010 three days later, with new economic forecasts.
But looking at the minutes of the December meeting, there seems to have been extensive debate about the need for as rate rise after the two increases of 0.25% each in October and November.
There’s talk of the arguments about the economy and a rate rise as being "finely balanced" in the minutes.
They described members as being ‘mindful" as "weighing" options in the discussion.
There isn’t the same sort of certainty there was in the November and October minutes when the phrase that stood out spoke of it being "prudent" to lift rates in November and "possibly imprudent" to leave the cash rate steady in October.
"Members saw this adjustment, together with those in the preceding two meetings, as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings," the December minutes said.
The idea of the board talking about the rate rise "increasing the flexibility available" to it at future meetings, has the strong hint the board is telling the market that rate rises are now much less certain.
(And so for that matter a rate cut, if the global economy tanks, as a tiny group of pessimists think could happen in the first half as Japan and Europe double dip and the euro slumps on sovereign risk fears in Greece, Spain and Ireland).
But the arguments delivered them to the point where they were convinced of the need for a third successive rate cut, a record. But not to slow the economy, but keep it on the rails.
"Members agreed that, if developments unfolded as currently expected, monetary policy would need to be adjusted further over time to lessen the degree of stimulus.
"That adjustment would not be intended to slow demand compared with the current forecast path, but aimed simply at keeping the stance of policy appropriate for improving economic conditions."
This is another example of the RBA executive telling the market that we are now over the emergency settings that called for very low rates (it’s still something many commentators still can’t grasp).
"The question for members was whether it was more appropriate to take a further step at this meeting or to hold the cash rate steady pending a further evaluation of developments at the February meeting. Members canvassed the arguments for each course of action.
"They weighed the potential for adverse effects on confidence of a further adjustment at this time, the continuing uncertainty over the international outlook given conditions in the major economies, and the high level of the exchange rate.
“Members also considered the likely long-run pressures on the economy from the combined demand for housing and infrastructure and resources sector investment over the years ahead.
"They were mindful that the approa
