- Meeting decision
- There was no immediate pressure to change policy rates at the current meeting
- Maintaining policy rates at their current levels would allow more time to see how trade negotiations unfolded
- It also gives time to thoroughly assess the consequences of any final outcome for the interest rate path
- The transmission of monetary policy continued to be smooth
- But it was also argued that transmission to credit was slow and that credit growth remained weak
- A few members judged risks to be tilted to the upside relative to June projections, especially over the medium-term
- It was contended that the economy was proving more resilient than had been expected
- That means a sustained undershooting of inflation is increasingly unlikely
- Therefore, an excessive focus on undershooting the inflation target seemed misguided
- Overall, there was currently a high option value to waiting for more information and the resolution of some uncertainty
- Members agreed to amend the formulation of the reaction function by adding a reference to the risks surrounding the inflation outlook
- In particular, a faithful description of the process leading to interest rate decisions needed to emphasise that the assessment of the inflation outlook took into account the risks surrounding the outlook
- Given the exceptional uncertainty and the risks of large inflationary and growth shocks in both directions, it was important to have a two-sided perspective, maintaining full optionality for future meetings and being agile in order to react quickly to large shocks if necessary
- Communication should maintain a careful, neutral tone and be deliberately uninformative about future interest rate decisions
- Full accounts
All of this are just supportive commentary and anecdotes in defending their decision to pause rate cuts through the summer. As things stand, that pause looks likely to be extended through to year-end as well. That especially as the economy is showing some resilience at the start of Q3 and with price pressures keeping policymakers on their toes for now, alongside trade developments.
This article was written by Justin Low at investinglive.com.