The RBA Minutes are released at 11.30am Tuesday. Traders and economists will pore over the document for signs of the RBA’s intentions.
But perhaps there is no need after RBA governor Glen Stevens’ amazing speech last week. It was amazing because while his colleagues around the world feign prescience and an ability to both foretell and control the future, Stevens admitted forecasting is almost impossible.
Stevens said forecasts “are hardly more than educated guesswork” and two-year forecasts were “even less reliable”.
He also explicitly called out the RBA’s recent track record for scrutiny saying that recent economic growth has been “weaker than what, two years ago, we expected would be happening by now”.
But, even allowing for the difficulty of forecasting, one answer to a question on interest rates Stevens gave suggests that the governor has a pretty pessimistic outlook for the economy.
In the Q&A session after his speech, Stevens said it will be quite some time before we see “normal” – read “sharply higher than 2%” – interest rates. “It’s quite some time before we even think about interest rates going up,” Stevens added.
They might bring joy to hearts of real estate agents and heavily indebted borrowers all over the country. But, coupled with his obvious disquiet over the lack of economic transition, especially business investment, and his comment that consumers probably can’t do too much more to lift economic growth suggests Stevens is more concerned about the outlook than he is letting on.
He knows monetary policy has lost traction in the economy. He explicitly called out infrastructure and government action to lift economic growth.
But his comment that rates will stay lower for longer suggests he knows there will be little assistance forthcoming.