Share market rises after a rally on Wall Street, Australian dollar remains at two-year low — as it happened

OK, so a lot of this discussion is couched in coded messages. Here’s some thoughts on the what the RBA is trying to say, in simpler language.

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“Growth in GDP had continued to be subdued in the September quarter and had been a little softer than expected.”

This is a bit of an understatement.

“Household consumption had picked up somewhat in the September quarter and early indications were that consumer spending had risen further in October and November. However, the extent to which this reflected a sustained recovery in consumer demand, rather than a pull-forward in expenditure in response to emerging patterns of promotional activity, was not clear.”

Are people spending again, or was it just ‘Black Friday’ sales bringing their Christmas shopping earlier? We don’t know.

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“After careful consideration of these factors, members agreed that it was appropriate to leave the cash rate target unchanged at this meeting. They noted that the data received since the previous meeting had not been sufficient to shift the central forecast for inflation or the labour market materially at this stage.”

The RBA board don’t think inflation it coming down fast enough to loosen (lower) interest rates. They also want to see more people unemployed. Brutal, but this is their consistent view.

“Relative to this central path, members judged that the risk that inflation returns to target more slowly than forecast had diminished since the previous meeting and that the downside risks to activity had strengthened. A consideration underpinning this judgement was reduced momentum in GDP growth over the year to the September quarter. Members noted that consumption growth had been weaker than expected over this period and that it was not clear whether the apparent strengthening in consumer spending in October and November would be sustained. Given the weakness in private demand and the slow pace of job creation in the market sector, members were alert to the risk that the unemployment rate could increase by more than expected if labour demand in the non-market sector were to slow abruptly.”

Aaaah, we may have pulled the interest rate lever too hard and crushed the economy. We’ll know more in February.

“While members judged the upside risks to inflation to have diminished, they discussed several factors that meant it was too soon to conclude with full confidence that inflation was moving sustainably towards target.”

Uncertainty about the labour market, whether it was just ‘Black Friday’ sales pushing consumer demand and persistence in global services price inflation is also a factor.

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“Members reiterated their earlier view that they had minimal tolerance to accommodate a more prolonged period of high inflation than currently envisaged. At the same time, if the future flow of data continued to evolve in line with, or weaker than, their expectations, it would further increase their confidence that inflation was declining sustainably towards target. If that were to occur, members concluded that it would, in due course, be appropriate to begin relaxing the degree of monetary policy tightness. If the data came in stronger, that process could take longer. They noted that, in making this decision, they would be guided by how the evolving data shaped the economic outlook and the associated risks.”

We’re going to wait and see before we relax interest rates.

“In finalising the Board’s statement, members affirmed that monetary policy would need to be sufficiently restrictive until members are confident that inflation is moving sustainably towards target.”

We won’t stop. Election or not, low GDP or not, the only thing that will impact interest rates is if the board is confident that there is a long-term shift to trimmed-mean inflation being between 2-3%, the ‘target band’

This is what they’ve been saying for a while, seemingly ignoring the long ‘lag’ between lifting rates and that constriction hitting the real economy.

“Returning inflation to target remains the Board’s highest priority and it will do what is necessary to achieve that outcome”.