The RBA statement on interest rates following its board meeting today at first pass seems fairly benign – except for the comment about the Aussie dollar’s rise subtracting from growth.
But a second reading suggests a move devilish motive in the RBA’s language as they highlight the risks to the economy going forward.
On the Aussie dollar specifically, the RBA language seems a bit florid when they say,
The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.
The is central-banker-speak for the Aussie is too high and is now subtracting from growth going forward.
But you have to wonder what game they are really playing at given that they had every opportunity to use much stronger language.
Perhaps they are hoping that the focus on the negatives that seem to occupy them throughout the statement will make the case for them as they have highlighted the fact that the resource sector investment is yet to be replaced elsewhere as “signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.”
They highlight that labour is also weak, that employment is going to remain subdued and unemployment will still rise.
But the kicker – the point that goes to the heart of economists concerns about both the dollar’s fall and the outlook for interest rates is this comment: “If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate.”
So the RBA seems to be saying: don’t worry about inflation, it will remain subdued even if the Aussie goes down.
So overall this is a dovish statement and those expecting a period of stability in interest rates might need to recalibrate based on what the nation’s central bank had to say today.