Big Changes at the Reserve Bank of Australia

December 4, 2007

The RBA left interest rates unchanged today at 6.75 percent but to surprise of the market, they released an uncharacteristic monetary policy statement!

No one expected the RBA to move, but they did expect the RBA to remain hawkish. Although they were hawkish to some degree, the market was disappointed by the fact that they said “monetary policy should be maintained for the time being.” In other words, don’t expect another interest rate hike anytime soon.

More specifically, the RBA expects inflation to be above their 3 percent target for the first half of 2008 and to decline thereafter. They also feel that growth will be closer to trend because Australia will be less affected by the global financial turmoil.

The RBA is watching conditions in the wholesale market. If prices rise, further rate hikes may be needed.

The BIG change however was the RBA’s announcement that from here on forward, they will be releasing a short statement each month explaining its decision, whether or not the cash rate is to be changed. This must be in response to market volatility and their desire to contain it.

More Details from the New Communication Statement:

Second, the Board’s decision will be announced shortly after the conclusion of the meeting. The earlier custom of waiting nearly 24 hours to announce the decision is no longer necessary from a logistical standpoint. Accordingly, commencing at the February 2008 meeting, the decision will be announced at 2.30 pm on the day of the meeting, with any change in the cash rate to take effect from the following day.

Third, the Board will release the minutes of its monetary policy meeting each month, two weeks after the meeting. The minutes record the main factual material available to the Board, the Board’s assessment of the policy issues, and the policy decision. The minutes do not attribute comments to individual members, nor do they record individuals’ votes. The minutes of the November 2007 meeting are being released today. The minutes of yesterday’s meeting will be released on 18 December at 11.30 am. The schedule of release dates for minutes of future meetings will be published in advance.