It wasn’t that long ago – less than a month – that many pundits were focused on the fact that low inflation had left the door open for an RBA rate cut in 2016.
Just yesterday the ANZ was forced by strong employment growth to move its rate cut call from February to May and August. But they highlighted that the risks of no action, no rate cuts, is rising.
That theme of no rate cuts is clear in reading the minutes from the December RBA board meeting which have just been released.
The RBA highlights that the domestic economy is strengthening and the outlook for retail sales improved.
“Information from liaison contacts suggested that retail conditions had been more favourable recently and a range of other indicators pointed to some strengthening in the pace of household consumption growth since the middle of the year,” the minutes said.
The RBA also expects the economic transition to be aided by continued strong building and construction in Australia’s housing sector:
“The minutes highlighted that the board accepted mining capex continues to fall. The Board also recognises that the official data shows that non-mining investment intentions continued to decline. But they also made the point that this data “covers only around half of non-mining investment.”
They then added that overall business conditions look healthy.
“Survey measures of business conditions continued to improve and were clearly above average, in particular for the household services and business services sectors, whose output was generally less capital intensive than other sectors. Business credit had increased further in October,” the minutes said.
The lower Australian dollar is also helping as “conditions in the non-mining sector had also been supported by further growth in net service exports, consistent with the depreciation of the exchange rate”.
The board also believed that the employment market would continue to look healthy, noting that: “Measures of job vacancies and advertisements pointed to continued growth in employment over the coming months.”
In the end, when considering monetary policy the board said:
“There continued to be evidence that very low interest rates were supporting growth in household consumption and dwelling investment, and the exchange rate was adjusting to the significant declines in key commodity prices and boosting demand for domestic production. This had translated into stronger employment growth and was consistent with surveys suggesting that business conditions were above average. Resource exports had continued to make a significant contribution to growth.”
The minutes noted there is still spare capacity in teh economy but said the drag from the end of the mining boom was washing through the economy. As the impacts of this diminish, “output growth to strengthen gradually over the next two years”.
But even though there are very few signs in the minutes of a central bank thinking about easing, the RBA did give itself wiggle room if something unforeseen happens to tip the economy into a hole.
“The Board would continue to assess the outlook, and hence whether the current stance of policy would most effectively foster sustainable growth and inflation consistent with the target,” they said.
All up, no rate cuts at the moment. But certainly no prospect of rate rises just yet either.