The decision to follow up the half a per cent rate cut in May with another quarter of a per cent cut in June was not as clear cut as markets previously thought.
The latest Reserve Bank Board minutes highlights that while the case for a rate cut was compelling, it was a “finely balanced” decision that was swayed by the ongoing European debt crisis.
Interestingly the minutes make mention of the general health of the domestic economy, with the recent round of domestic data “generally had not suggested a significant weakening in conditions”. The Reserve Bank is well aware of the multi-speed nature of the economy however recent data on retail sales, labour market, mining investment and even business credit implied a “degree of resilience” in domestic activity. In fact in recent times policy officials have been at pains to highlight that any inherent weakness is more a confidence issue than as a result of significant structural weakness.
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