Westpac with a detailed response on the Reserve Bank of Australia . In (very brief) summary (ps. I've pulled out the bit on the neutral rate):
- The most important result from the minutes of the monetary policy meeting of the RBA Board was to finally nominate the Bank's estimate of the "new neutral real interest rate for Australia". ...
- The minutes highlight that the Bank now believes that the neutral nominal cash rate is around 3.5% indicating a neutral real rate of 1% on the basis that medium term inflation expectations are around 2.5%. Consequently any move back to neutral would involve around 200 basis points in tightening.
- Overall, in the current circumstances, this neutral rate, looks too high.
- Arguably, the discussion around the neutral rate can be interpreted as laying the foundation for a tightening cycle. However with uncertainty around wages and inflation; the consumer; and, of course, the labour market and housing it would be inappropriate to over interpret this signal.
