The RBA’s quarterly statement on monetary policy (SoMP) has just dropped and it’s fair to say a more sanguine outlook for the economy has been delivered and as a result the chances of another rate cut seem to have been materially reduced.
Key to this is the RBA highlighting that, “In the face of significant structural change, the Australian economy has continued to grow at a moderate pace over the past year.” They didn’t gild the lily and highlighted that Q2 growth looks like it slowed from the first quarter “largely reflecting some reversal of the substantial rise in exports earlier in the year.”
But, the SoMP said that, “at the same time, however, a number of indicators of economic conditions have been more positive over recent months. In particular, labour force data have shown signs of improvement and measures of business conditions in the non-mining sector are clearly above average.”
The RBA added consumption growth continues to pick up, supported by low interest rates and a fall in the savings rate. This is no doubt helped by the labour market.
“Labour market conditions are generally better than had been expected a few months ago, although spare capacity still remains,” it said.
That has also meant that the RBA has cut its forecast for unemployment “to be lower than previously anticipated.”
On currency the RBA highlighted that the Aussie dollar has fallen significantly but, in keeping with the Governors statement on Tuesday, it was silent on the need for further adjustment lower.
All of which ties into the vitally important penultimate paragraph of the overview which highlights that the rate cuts in February and May are still working their way through the economy. The RBA also added that:
Data on the domestic economy over the past few months have generally been positive. Survey measures of business conditions are clearly above average, businesses have been hiring more labour and the unemployment rate is slightly
lower than had earlier been expected. The further depreciation of the exchange rate will provide some assistance with the adjustment of the economy to the lower terms of trade. Nevertheless, the economy is still facing some headwinds and it is likely to be operating with a degree of spare capacity for some time yet.
That leaves the RBA Board in the position where it “will continue to assess the outlook and adjust policy as needed.” But this Statement on Montary Policy leaves the distinct impression that the RBA is happy with Australia’s economic transition, with the level of interest rates and how far the Aussie dollar has fallen.
That doesn’t mean the economy won’t need another cut at some point. But it does leave a clear impression the RBA is more inclined to do nothing for some time yet.
Here is the table of the RBA’s forecasts for growth and inflation:
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