The RBA board voted on October 7 to cut the cash rate to 6 per cent, from 7 per cent. The dramatic move was the first 1 percentage point interest rate cut since May 1992.
"The key factors for members' consideration were the sharply worsening conditions in international financial markets during September and the consequential deterioration in the global economic outlook,'' the minutes said.
The central bank noted that economic growth forecasts for developed and developing economies were in the process of being revised down, particularly for 2009, which would weigh down the Australian economy.
"Members also noted that Australian financial markets were being affected to a lesser extent than in many other countries, given the relative strength of the domestic banking system,'' the minutes said.
"Nonetheless, the deterioration in the outlook for global economic activity posed downside risks to the domestic economy.'
The RBA said downside risks to the domestic economy and the prospect of lower rates of inflation in 2009 supported the case for a 100 basis point rate cut.
With the world economy slowing, the RBA also expects falling commodity prices to hamper Australia's growth prospects.
"Members noted that the expansionary effects of the recent surge in Australia's terms of trade were still being felt,'' the minutes said.
"With the world economy clearly slowing, however, and many commodity prices now having fallen significantly from their peaks, the external stimulus to Australian incomes and demand was expected to fade over the years ahead.''
A big rate cut was also seen as necessary to reduce lending rates.
"As staff estimates suggested that banks' funding costs had risen by about 20 to 25 basis points relative to relevant benchmarks, any reduction in interest rates that banks announced on loans to customers would most likely be less than the change in the cash rate by a similar margin,'' the minutes said.
Board members were concerned about the effect a large rate cut could have on market sentiment.
"The board considered the possibility that a larger-than-expected easing of 100 basis points could have a negative effect on market sentiment,'' the minutes said.
"The exchange rate in particular had fallen sharply over the preceding 24 hours.
"Members concluded that, despite the possibility of a short-term adverse reaction, stronger action would help sentiment over time.''
The RBA board expects inflation to recede in 2009, even if the consumer price index (CPI) climbed to an annual pace of five per cent in the September quarter, a level which would be well above the central bank's two to three per cent inflation target.
"Although the September quarter CPI, to be released before the next meeting, was likely to show an increase of around five per cent over the year, members noted that the current staff forecast was for inflation to start to decline in 2009,'' the minutes said.
"Moreover, the recent deterioration in global growth prospects, together with the more difficult market conditions even for creditworthy borrowers, increased the risk that demand and output could be significantly weaker than earlier expected.
"In that scenario, inflation would most likely fall faster than previously expected.''
At the time of the cut the RBA said it did not regard the 100 basis point easing as the start of a new pattern for monetary policy.
The minutes noted the RBA expected business investment spending plans to be scaled back, employment growth to slow further, and that the terms of trade (the ratio of export prices to import prices) had probably peaked.
The minutes also said that, as a result of the winding back of commodity prices, the gap between growth in gross domestic product (GDP) and real national income growth, was likely to narrow "over the period ahead''.
That implied less of an external stimulus to the economy.
Despite this, and the lack of any clear hint about the monetary policy outlook, there is nothing in the minutes to dissuade anyone from the view that the likelihood is for the cash rate to be cut significantly from its current level, most likely from the next meeting on November 4.
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