The RBA has just released its quarterly Statement on Monetary Policy which contains the most comprehensive overview of its thoughts on the Australian economy.
Here are the key take-outs.
On the outlook for interest rates the RBA says that we can expect no changes for the foreseeable future.
Given that assessment, the Board’s judgement is that monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.
One of the reasons that official rates are stable is that “average rates” are falling again. So we’ve already received a rate cut in the economy.
Australian financial conditions remain very accommodative. Over recent months, there has been a decline in average lending rates paid, which are at historically low levels. The decline in part owes to the ongoing replacement of more expensive fixed and discount variable rate loans from previous years, as well as a reduction in interest rates on offer for some borrowers.
The mining investment boom is over and the transition has yet to take hold other than dwelling construction.
non-mining business investment remains low relative to its average share of economic activity over recent decades and the Bank’s liaison continues to report that firms are reluctant to undertake significant investment projects until they see a sustained period of strong demand.
Retail consumption has slowed and we need to watch the ANZ weekly and Westpac monthly measures of consumer sentiment.
after picking up through 2013, consumption growth looks to have slowed in the first half of this year, with weaker retail sales growth and consumer sentiment falling to below-average levels. It remains to be seen whether this slower growth of consumption is temporary. Indeed, a timely measure of consumer sentiment has rebounded recently to be back above average.
The unemployment rate is bouncing around but we’ll only see modest growth in the year ahead.
forward-looking indicators of labour demand have generally improved since late last year, pointing to modest employment growth over coming months. However, there remains a degree of spare capacity in the labour market.
They also said:
- The Aussie dollar is still too high
- Inflation will moderate and
- Unemployment will remain high until 2016
In summary the RBA says that “the outlook for domestic growth is not materially different from that presented in the May Statement. It continues to reflect the opposing forces of the decline in mining investment and ongoing fiscal consolidation on the one hand, and the strong growth in resource exports and the support from very low interest rates on the other”.
But on the basis of the August SoMP market pricing that a rate hike is nowhere on the horizon and the chances of a rate cut have grown seem on the money.
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