The RBA's unnecessary rate hike will constrain near-term growth, which means we are not likely to see another movement until well into next year.

For the second consecutive month, the RBA has surprised the market and ourselves with its policy decision, raising the cash rate 25bps to 4.75 per cent. In last month’s report we were adamant that despite no move in October the bank was set to move in November. That was until we saw the minutes associated with the October board meeting. These painted a much more dovish picture for the Australian economy than had been the case in the September minutes. The October minutes questioned the status of the investment boom; qualified the strength of the labour market; and emphasised the cautious consumer. As we fundamentally believed that rates should be on hold until at least February due to the fragility of the consumer; housing and (non mining) business confidence we were eager to interpret the bank’s more measured tone as a sign that they were prepared to be patient – a policy with which we concurred. The concern was that this shift was not forward looking, but was designed to justify a surprise decision not to raise rates in October. Our concerns were justified with the dovish tone being dropped in the November post-meeting statement from the governor despite no truly significant new information.



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