Benjamin Reitzes of BMO Capital Markets said, "The minutes had a dovish tone as expected, making a rate cut in September all but a lock."

Economists at Brown Brothers Harriman agree. "The bank made it clear again that it was focused on growth rather than inflation and that it would move to a less restrictive stance."

David Forrester, economist with Barclays Capital, said the RBA Board noted that inflation remaining above the target band of 2% to 3% for a prolonged period raises the risk of an acceleration in wages growth, which would make inflation more costly to control in the long run. "Last week wages data for Q2 showed a significant acceleration in wages growth, so an updated version of the minutes would likely express more concern about wages growth and the potential unhinging of inflation expectations to the upside," he added.

Bill Evans, managing director of economics and research with Westpac, said the wording of the statement implies only a 25 basis point cut at the next meeting and a further 25 basis point cut before the end of the year.

There was a strong new point, he said, and quoted the minutes: "'On these considerations, a case could be made for an early reduction in the cash rate.' An even more urgent comment would have been 'an immediate reduction in the cash rate' indicating that the decision not to move in August would have required a 'catch up' in September. That wording would have immensely helped the case for 50 bp's," he said.

Looking forward, Evans said the real issue is whether the easing cycle will be similar to the two previous cycles (200 bp's over 12 months), or whether the cycle will be interrupted until the Bank is confident that inflation pressures have eased sufficiently to move into the 'expansionary zone'. "We favour that view so expect the Bank to pause in early 2009 once it gets rates down by around 1%," he said.

Forrester agreed with Evans' immediate prediction, saying he continues to look for 25bp cut in September and 50bp worth of cuts by year end. "The market pricing for 65-70bp worth of cuts by year end is still too aggressive in our opinion," he added.

Markets are currently fully priced in for a 25 basis point cut and an 18% chance of a 50 basis point cut at the Sept. 3 meeting.

Although Reitzes feels that markets have already priced in a rate cut, he believes the Australian dollar will display "little reaction". On the other hand, Forrester believes the minutes should provide a modest boost to the Australian dollar as the market is pricing in a chance of a 50bp cut in September.

"A paring back of these expectations could provide AUD/USD with some support against what we expect to be a stronger USD in the coming month," Forrester added. "This paring back should also help AUD/NZD find a bottom around its recently low of about 1.22 and trade higher with in a 1.22-1.25 range in the coming months."

By Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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