That’s the key takeaway from the RBA’s Statement on Monetary Policy is the striking feature that the growth projections for 2015 have only, “been revised a little lower in the near term.”
That means that growth in Australia will, “remain a bit below trend over the course of this year, before picking up to an above-trend pace in the latter part of the forecast period as consumption growth improves, non-mining business investment lifts and LNG exports increase.”
In a time of slowing growth and inflation, that is almost a bullish statement on growth from the RBA.
The Aussie dollar is higher because the forecasts for growth and inflation are hardly changed. It almost guarantees that all the US dollar has to do is turn a little and the Aussie dollar will rally, and perhaps sharply.
The SoMP is a statement that will also have the economic fraternity, many of who were enraged by the way the RBA communicated its intentions this week, struggling to see exactly what was so urgent about the outlook that the RBA saw fit to leak to the press and then cut when most economists thought they would hold.
That means that the follow up cut many expected in March is not the fait accompli that some hoped.
But the lack of bearish growth and inflation forecasts also suggests that it is the Aussie dollar which drove the RBA cut on Tuesday.
But here is the kicker that says at the moment the RBA has simply taken out insurance on the economy and growth, rather than embarked on a series of rate cuts:
Prior to the February Board meeting, the cash rate had been at the same level since August 2013. Interest rates faced by households and firms had declined a little over this period. Very low interest rates have contributed to a pick-up in the growth of non-mining activity. The recent large fall in oil prices, if sustained, will also help to bolster domestic demand. However, over recent months there have been fewer indications of a near-term strengthening in growth than previous forecasts would have implied. Hence, growth overall is now forecast to remain at a below-trend pace somewhat longer than had earlier been expected. Accordingly, the economy is expected to be operating with a degree of spare capacity for some time yet, and domestic cost pressures are likely to remain subdued and inflation well contained. In addition, while the exchange rate has depreciated, it remains above most estimates of its fundamental value, particularly given the significant falls in key commodity prices, and so is providing less assistance in delivering balanced growth in the economy than it could.
The RBA is disappointed with how things are going so they have cut to ease things along.
Over the past 20 years or more the RBA has given monetary policy a nudge here and there many times and they will do it again if necessary.
But it could be many months until it determines another cut is needed.