The Reserve Bank has just released the Minutes from this month’s Board meeting.
Two things stand out.
First that the RBA:
…should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them. The Board would continue to examine the data over the months ahead to assess whether monetary policy was appropriately configured.
And secondly that the Australian economy is still riding on the back of the mining boom with scant evidence that the domestic economy is ready, willing or able to do the heavy lifting in the quarters ahead.
Take these two paragraphs from the minutes:
Exports had been supporting overall growth in the economy. Iron ore exports had continued to grow strongly in the June quarter as new production facilities came on stream following the significant investment in recent years. Coal export volumes were also higher over the past year, although coal prices had declined. Members noted that rural exports remained at a high level, following generally good rainfall in recent years.
The available indicators suggested that growth of household consumption in the June quarter had been below average. Retail sales had been little changed since March and liaison contacts reported that retail sales growth had been only modest in recent months. Sales of motor vehicles to households declined in July, although this followed relatively strong growth in the June quarter. In contrast, measures of consumer sentiment had moved higher and were a little above long-run average levels.
This is a worry, because:
Mining investment was expected to decline over the course of the next few years. With investment projects reaching completion, the strong growth in exports of bulk commodities was expected to continue for some years. Indicators of conditions elsewhere in the business sector remained subdued. The latest ABS survey of firms’ investment intentions for the year ahead suggested that non-mining business investment would remain restrained in the immediate period ahead, which was consistent with the apparent reluctance of businesses to take on new risks at present.
The Reserve Bank is on hold because it thinks it has done a lot of work and that stimulus is still coming down the pipe with 2.25% of cuts since 2011 which will help the economy negotiate the shift in resources. They would also like to see the Australian dollar lower which is probably why it has just fallen around 0.4 of a cent to 0.9290 and looks biased lower in the short in recognition that the RBA wants a lower Aussie to foster a rebalancing of growth in the economy or it will need to cut again.
Westpac and the NAB still think rates are going lower – on the basis of these minutes and a still strong Aussie you’d have to think they might be right.
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