All eyes on RBA board meeting minutes

‘The Reserve Bank has been careful to keep its options open ahead of its February cash rate decision, with analysts hopeful the minutes from the board’s last meeting will shed some light on the path ahead.

Due on Tuesday, the minutes from the central bank’s December board meeting will confirm if the 25 basis point rate hike was the only option discussed.

NAB markets economist Taylor Nugent said a discussion of a return to a 50 basis point hike would bolster the case for more rate hikes in the new year.

Conversely, the consideration of a pause in December could support the argument that the RBA has already done enough to counter inflation and could hold rates steady when it meets in February.

St George economist Jameson Coombs said the bank’s 25bp cash rate rise in December – the latest in a series of hikes designed to cool sky-high inflation – was accompanied by “deliberately vague but decidedly balanced” commentary” from the governor Philip Lowe.

“Ultimately, the message was clear, the RBA expects to ‘increase interest rates further over the period ahead’, but the path to get there may not necessarily be a straight one,” Mr Coombs said.

Meanwhile, the manufacturing sector’s post-pandemic tailwind has come to an abrupt end as rising interest rates, high energy costs, acute labour shortages and lingering supply chain issues finally catch up with manufacturers.

After a strong September quarter, the Westpac-Australian Chamber of Commerce and Industry gauge of industrial business conditions has dropped sharply into negative territory.

The “actual composite index” fell from an elevated 64.6 in the September quarter to 49 in the December quarter. A reading below 50 indicates declining conditions.

The weakening in the indicator was led by sluggish new orders, lower output and a decline in employment and overtime.

“The burst of demand enjoyed by the manufacturing sector on the reopening of the economy from delta lockdowns and the omicron disruptions has come to an end,” ACCI chief executive Andrew McKellar said.

He said manufacturers were reining in their spending in response to worsening economic conditions.

“As we anticipate a more challenging year for local manufacturers in 2023, it’s imperative that government works to keep energy, labour, and material costs down.”

Profit expectations have also taken a hit and veered into negative territory, the survey found.

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