RBA minutes point to no rate rise soon

Homeowners could be let off the hook from rising interest rates for an extended
period if uncertainty in global financial markets prevails.
The Reserve Bank of Australia (RBA) would appear to be in no haste to lift interest
rates further while the debt crisis in Europe plays out.
The minutes of the central bank's June board meeting - where it left the cash rate
unchanged at 4.5 per cent - were released on Tuesday, and suggest a further rate
increase would be in August at the very earliest.
"Members judged that these previous monetary actions afforded policy the flexibility
to await information on how the recent market uncertainty might affect the global
economy, as well as the outlook for inflation," the minutes said.
The central bank had raised the cash rate six times since October last year prior to
its decision to leave policy on hold this month, including increases at the three
preceding board meetings.
The minutes said global sentiment had deteriorated sharply in the period following
the May board meeting as concerns about the fiscal position of Greece, Spain and
Portugal intensified.
"Some governments were now in the very difficult position of having to tighten
fiscal policy at a time when growth remained weak," it said.
The central bank said that while recent Australian prices and wages data suggested
that the "disinflationary forces" in the economy were not quite as strong as
previously expected, global events could also have implications for the inflation
outlook in the medium term.
It noted that the consumer price index for the June quarter would be released in
late July, which "would provide information on the extent of inflationary pressures
in the economy".
Separately, RBA Deputy Governor Ric Battellino told a forum of financial executives
that events in Europe were "quite worrying".
He said if a government got into trouble it had to look to other governments or the
International Monetary Fund (IMF) to bail it out.
"The bigger you are, the less capacity there is for somebody else to bail you out,"
he said in answer to a question.
"So, developments in government debt are, I think, a worry because it's not clear to
me that they can be solved any time soon and if they are going to be solved through
fiscal tightening, that actually means some quite difficult periods ahead for some
of these economies."
But, he said, Australia's own government debt position was "very good", plus, the
country was in a part of the world which would be "least affected" by these issues.
While economists expect the CPI on July 28 will be crucial to the monetary policy
outlook, global events could still stay the central bank's hand.
"In times of uncertainty, the RBA tends to sit on its hands awaiting more data and
developments," said RBC Capital Markets senior economist Su-Lin Ong, who expects a
rate rise in August.
"This looks especially prudent at present and rates are likely to remain on hold in
July ... (but) we acknowledge that there is a risk that this pause extends beyond a
couple of months, especially if the European situation deteriorates further.