The Reserve Bank of Australia has just released its monthly board meeting decision on cash rates. And as expected the RBA made no change in monetary policy.
However, the language of the statement was much less dovish than it could have been given the crash in consumer confidence since the Federal Budget.
Gavin Goodhand, Senior Fixed Income Portfolio Manager at Altius Asset Management, told Business Insider: “Domestic growth and activity data will be the main driver of policy expectations over the next couple of months.”
But he added that the RBA continues to imply a still relatively “upbeat” take on the interest rate-sensitive sectors of the economy.
Here are the three key take-outs:
The RBA still believes that the underlying momentum is coming through in Australia
Upbeat they may seem but the RBA could be characterised as cautiously upbeat and perhaps a little tentative in outlook for growth with every positive being balanced by a negative or tempering comment.
For example on employment, the RBA said: “There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently.”
On housing: “Dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently”.
On the surge in exports the RBA highlights that it was a result “partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters”.
So cautious optimism but monetary policy is working.
The Aussie Dollar is too high!
The RBA goes for the double bunger of telling the market both that the fall in the exchange rate so far is not helping growth much going forward and reminding the market that the Aussie should be lower based on commodity price falls.
The earlier decline in the exchange rate is assisting in achieving balanced growth in the economy, but less so than previously as a result of the higher levels over the past few months. The exchange rate remains high by historical standards, particularly given the further decline in commodity prices.
This is as subtle as a sledge hammer insofar as the RBA is signalling it wants the Aussie dollar lower. But without a concrete plan to sell or an indication that rates will fall, Aussie dollar traders have taken no notice. The dollar sits at 0.9263.
The Budget doesn’t rate a mention
Incredible as it may seem there is no reference to the Budget or consumer confidence. Rather the RBA is sticking with the mantra that says monetary policy is working.
That seems fair given that the RBA board would have seen the big fall and then spike in confidence many times in May. So it’s too early to say that the fall this year will be any different. The ANZ Weekly consumer confidence released this morning showed exactly the sort of bounce, or at least the start that would be expected.
It all ends up with another month of RBA rates on hold at 2.5% and the assertion from the RBA, once again, that a period of stability in interest rates is “the most prudent course” of action.