We learned nothing really significant from the minutes of the Melbourne Cup meeting of the Reserve Bank board which cut interest rates by 0.25%.
The minutes gave no clear hint to future interest rate movements according to analysts.
Why this should be a concern is puzzling because the post meeting statement from Governor Glenn Stevens, then commentary in the 4th Statement of Monetary Policy a few days later on November 4, made it clear the bank would wait a while and assess the health of the economy and what happens in Europe which remains the focus for the central bank as well as markets.
We saw that yesterday where continuing concerns about Greece and Italy again outweighed the RBA minutes and the solid trading update from the Commonwealth Bank.
The local market lost around 18 points (around 0.4%) and other markets in Asia were weaker as well.
The October car sales data from the Australian Bureau of Statistics confirmed industry figures earlier this month that car purchases continue at solid levels.
According to the ABS data, new car sales rose 1.1% in October, seasonally adjusted to 88,182 units, compared with 87,187 units in September.
In the year to October, new motor vehicle sales rose 4.4%, seasonally adjusted.
October was the fifth month in a row that car sales had risen.
Figures from the Federated Chamber of Automotive Industries earlier this month showed sales rose 5.3% in October, from October last year.
The data confirmed the trend since the RBA board meeting for data from September and October to be stronger than the board thought on November 1.
"The recent data on economic activity had been a little more positive than in the previous couple of months, although conditions remained subdued in a number of sectors," the minutes said yesterday.
The bank ended up cutting rates after a boardroom debate about the case for and against a reduction.
"A case could be made for leaving rates unchanged on the basis that, unless the world economy turned down in a serious way, the expansionary effects of the high terms of trade and the associated investment build-up would, in time, assert themselves more fully, even though recent conditions had been softer than expected," the minutes read.
"In that event, policy settings on the tight side of normal would be appropriate over the medium term. In the meantime, the expectation that policy might be eased was itself being reflected in a reduced level of market interest rates.
"The case for an easing in policy was that there had clearly been material changes to the recent course of, and outlook for, underlying inflation over recent months, while the downside risks for the global economy had increased.
"While the financial conditions that had been in place over the past year had helped contain inflation pressures in the economy, with the change in outlook that stance was no longer necessary.
"A more neutral setting would, on this view, be compatible with achieving sustainable growth and inflation consistent with the target over the period ahead.
"On balance, members concluded that it was appropriate for there to be a modest easing in the stance of monetary policy," the minutes concluded.
Since the board meeting, Europe has definitely seen a worsening in sentiment: the governments of Italy and Greece have been changed and markets remain intensely nervous.
The European Central Bank cut interest rates three days after the RBA cut its key rate, but the European move came with a warning from the President Mario Draghi that the eurozone was facing a mild recession.
Since then industrial production, exports and orders have all fallen for September and there is now a widespread belief that the eurozone economies (in fact all the EU) will all experience negative growth this current quarter and in the first quarter of 2012, which would mean a statistical recession.
Figures out overnight showed Germany (up 0.5%) and france (up 0.4%) saw reasonable growth in the third quarter, while the rest of Europe was sluggish.
Overall eurozone growth was 0.2%, unchanged from the second quarter.
But the Netherland contracted by 0.3% in the quarter, a surprise. Greece saw a 5.2% slide in growth and Portugal had negative growth for a 5th quarter and Spain didn’t grow.
Italy has yet to report GDP data.= for the third quarter
That will make cutting the debt levels of countries like Greece, Spain, Italy, Belgium and France even tougher, raising prospects for more problems and market pressures.
The RBA minutes reported on November 1:
"Developments in Europe were again the dominant influence on financial markets in October. As optimism increased about the prospects for resolving Europe’s current financial problems, many asset prices had recovered from their lows at the time of the previous Board meeting.
“The announcement of measures to support market liquidity in the euro area and better-than-expected economic data in the United States also helped to improve market sentiment."
Two weeks later that optimism has gone, especially with Italy going close to the edge of the abyss last week and Greece the week before.
