RBA holding out for stormy weather
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The Reserve Bank’s foot remains on the accelerator, ready to feed the economy bus more juice if any steep hills appear, but wary of what sort of momentum the vehicle might be building. So it’s steady-as-the-bus goes for another month.
Besides, in repeating his observation about funding conditions for financial institutions being “more favourable”, Governor Glenn Stevens indicates there is room in the real world for interest rates to ease a little more without the RBA needing to touch the cash rate. Monetary policy is being slightly eased while the RBA officially sits pat.
The governor’s brief statement is very much a repeat of last month’s with nothing added to the greater detail of his appearance before the House of Representatives economics committee two weeks ago. The bank’s bias remains on the easing side, it’s ready and willing to apply further monetary stimulation, but it’s not being panicked into pushing rates lower while waiting to see what impact previous rate reductions might have.
What is of passing interest is the calmer tone of the governor compared with market reaction to the latest numbers. The RBA still sees tomorrow’s national accounts figures likely to produce GDP growth for 2012 of close to 3 per cent.
The bank remains hopeful about housing investment, but the governor again notes that public spending “is forecast to be constrained”. Today’s stronger-than-expected public spending figures for the December quarter might well be taken as something of a one-off
Similarly, the governor doesn’t sound nearly as enthusiastic as the market commentariat’s reaction to this morning’s January retail sales numbers. It would take a brave soul to read too much into one month’s leap in seasonally-adjusted retail sales.
As usual, the trend series tell a less dramatic story – as the accompanying graph shows. A 0.1 per cent rise in trend retail sales after flatlining for four months, well, it’s somewhat less than one swallow failing to make summer. At this stage, try a sparrow.
After such poor December figures, it was a fair bet that there would be a January bounce – incomes are still rising, unemployment remains relatively low and people eventually spend money. Hopefully January will prove to be the start of better times for retailers, but at this stage it’s more a matter of hope than expectation.
Setting monetary policy then remains a finely-balanced act. There’s a large act of faith in “build it (historically low rates) and they will come”. The RBA is keen to provide some comfort that rates will do what they have to do, the bias remains clearly to easing, but I suspect the Martin Place mandarins would be even happier to leave the cash rate alone for as long as possible.
Michael Pascoe is a BusinessDay contributing editor.