Australia | Jun 07 2011
By Greg Peel
Going back a couple of months, no one expected another RBA cash rate rise was likely before August after the June quarter GDP result was in. But half that pack broke away after the minutes of the May RBA meeting were released. Suddenly the language was a lot more hawkish than it had been, and the RBA suggested a rate rise would be needed “at some point”. The statement accompanying the May “no change” decision had included this caveat:
“Looking through these short-term movements, however, the recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course. While the rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.”
The board, noted governor Glenn Stevens, would now “assess the outlook carefully”. But then along came a weaker than expected March quarter GDP, and subsequent monthly data have also been to the weaker side including yesterday's ANZ job ad series. House prices have begun to tip over, mortgage arrears have begun to tick up, and yet the big banks are now locked in a mortgage discount war.
And the two-speed economy has become glaringly obvious, so by yesterday virtually no one was expecting a rate rise today. This is despite the fact the RBA made the same “interest rate rise at some point” call in October before raising in November last year.
Well not only did this latest statement reiterate that the current “mildly restrictive stance of monetary policy remains appropriate”, overall it backed right off. Apart from adding to what was otherwise pretty much a carbon copy of last month's statement, the new observations that: “Outside the resources sector, investment intentions have been revised lower recently”; and “the impetus from earlier Australian government spending programs is also now abating”; and “the resumption of coal production in flooded mines is taking longer than first expected”, The RBA actually omitted that caveat above.
The whole paragraph about the inflation decline having now run its course is gone. Vanished.
This would suggest that the RBA has actually backed down from its position in May, which would make a July rate rise – the June camp had withdrawn to July – unlikely. At this stage, one would have to expect another rate rise in August at the earliest and that will still depend on the data to come in the meantime, including June quarter CPI and GDP numbers.
For now, the “mildly restrictive stance of monetary policy is appropriate”.
Read the full statement here.
