Over the past week, I've listened to presentations from three bank economists with variations on the line that the world is deteriorating, that will have a greater impact on Australia than the RBA realises and housing construction isn't picking up soon enough, so monetary policy will have to be eased further early next year. I've also heard or read three economists explaining that the easing cycle is over. So it goes.
The important difference between commentary from private sector economists and RBA economists is that the RBA types decide what actually happens to interest rates while the private sector types only talk about it. Thus the October RBA board meeting minutes released Tuesday, although predictable, matter considerably more than all the private sector analysis.
And the contrast in tone is sharp between the RBA minutes and those who think the Australian economy is still sliding. Notwithstanding the present dangers of American political fundamentalism, the big picture painted by the minutes is one of cautious optimism, albeit with two persistent dark clouds in the shape of a soft labour market and an annoyingly strong currency.
The RBA board meeting predated the IMF's latest downwards revision of global growth, but the RBA board was nonetheless dealing with more up-to-date data. And the RBA notes the difference between global growth and that of our trading partners which is running at around its long-term average. The data from China has been a bit stronger than earlier in the year and the news from Japan had been generally positive.
(For the China bears who might immediately seize on the dip in Chinese exports in the latest figures, that should be seen as only one figure in a generally positive bunch, with the positives typically being passed over. For example, yes, exports were below expectations, but import growth was a good 7.4 per cent. The September trade surplus was still $US15.2 billion for a country whose foreign reserves increased to $US3.66 trillion. Chinese power output grew a strong 10.4 per cent last month. The September CPI was up 3.1 per cent, driven by food, but the producer price index fell 1.3 per cent.)
Domestically, the minutes state what everyone knows: growth is below trend and is likely to stay that way. There's no sign of a change from the forecast of growth of about 2.5 per cent this financial year, but there are signs of stirrings with consumer confidence above its longer-term average and business confidence at about its longer-term average. The board wasn't sure if that would be sustained, or whether the Australian dollar would remain elevated, but:
"The effect of low interest rates was evident across a range of indicators and had further to run. House prices and turnover had increased and leading indicators pointed to a pick-up in dwelling investment over the period ahead. While credit growth remained moderate, there were signs of an increased appetite for borrowing, most notably among investors.
"The information to hand at the meeting was consistent with growth of economic activity remaining below trend over the next year or so before an expected pick-up. Inflation was expected to be consistent with the target over the next one to two years.
"The board's judgment was that, given the substantial degree of policy stimulus that had been imparted, it would be prudent to leave the cash rate at the existing low level while continuing to gauge the effects. Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them. The board would continue to examine the data over the months ahead to assess whether monetary policy was appropriately configured."
And the board was pointedly relaxed about the housing market as it stands:
"House prices increased by around 2½ per cent over the September quarter and by 5½ per cent over the year. However, the value of the dwelling stock relative to household income remained below the levels that had prevailed for most of the past decade. Auction clearance rates remained well above average and turnover had picked up over recent months. Loan approvals for established dwellings for both owner-occupiers and investors had increased strongly over the past year. While the growth of housing credit remained moderate, it was edging higher, with stronger growth in investor credit."
So there is no easing bias with the stimulus of present low rates yet to be fully felt, but, as always, the bank would be able to cut rates further if the outlook deteriorates. The only thing off the agenda for the foreseeable future is a rate rise. The penguins continue to sit pat.
Michael Pascoe is a BusinessDay contributing editor.