Speaking at a CEDA lunch in Adelaide a day after the RBA board meeting, Glenn Stevens gave the clearest signal yet that he has no intention of cutting rates anytime soon and perhaps only if the the economy gets into real trouble.
The RBA governor walked through many of the topics covered in his statement yesterday, sticking close to script.
Yes, property prices “can fall, even in China”; markets are still showing a big lack of volatility, especially in Europe; exchange rates for many countries including Australia and the Aussie dollar are a “puzzle”.
But in other areas, Stevens was genuinely encouraged and encouraging about the level of innovation in the economy:
But my suspicion, admittedly based on some rather indirect measurement, is that innovation is occurring. For example, according to a regular ABS survey on innovation in Australian companies, the trend over recent years is for more companies to be developing innovations and fewer to be abandoning attempted innovations. We can also observe that growth in labour productivity per hour has picked up in the past couple of years, which suggests changes to practices in work places. And one crude gauge of ‘animal spirits’ – the number of new companies registered with ASIC – has been rising quite strongly since 2011.
However, when he turned his mind to what monetary policy can’t do, he gave a signal, made recently in his entreaty, that it was time for “animal spirits” to take over and that monetary policy had done all it could in Australia at the moment:
As for things that monetary policy should try to avoid, we are also cognisant of the fact that monetary policy does work initially by affecting financial risk-taking behaviour. In our efforts to stimulate growth in the real economy, we don’t want to foster too much build-up of risk in the financial sector, such that people are over-extended. That could leave the economy exposed to nasty shocks in the future. The more prudent approach is to try to avoid, so far as we can, that particular boom-bust cycle. It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that.
That is central bank speak for “there will be no easing anytime soon”.