The notion that has emerged about whether the RBA has a soft or hard easing bias seems arcane to those of us who have been trading and watching the RBA for the past 20 years or more.
That’s because the RBA has an unstated mantra of “do least harm.” That means it has a bias to have an open mind on the economic outlook and to proactively act to assist Australian growth chart whatever global economic waters it finds itself in.
At times like the present that means an inclination to ease rates. At other times it means an inclination to hike rates.
The Aussie dollar is ripping higher in the wake of the Governors statement because there is no explicit easing bias. But, the notion that the RBA will explicitly signal what it is going to do with each Governors statement is not the way it operates.
But that doesn’t mean you can’t tell what the RBA is thinking.
Take paragraph 3 of the Governors statement today. It said:
In Australia, the available information suggests the economy has continued to grow, but at a rate somewhat below its longer-term average. Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.
You can almost stop there once you have read that.
The economy is growing. But it’s growing slowly. Households and construction are doing their thing and monetary policy is working. But business investment is low — across the whole economy.
So on balance “the economy is likely to be operating with a degree of spare capacity for some time yet.”
That means the RBA has a bias to ease rates. It may not exercise that bias but it is there nonetheless.