RBA Statement

No change in the cash rate today, as expected.

Here’s the full statement.

Some takeaways:

  • Chinese property a drag (albeit it with strong indication of a changing policy stance, whether it is effectual remains to be seen)
  • Volatility up globally, though still not elevated by any means
  • Mining investment is declining offset by a pick up by ‘other areas’ of private investment (other areas mostly being residential property construction)
  • Labour market data have been all over the place lately, conditions aren’t dire but softness remains (a great share of recent job creation has been centred on property construction)
  • Monetary policy is loose. Overall credit growth is moderate but being driven by housing investors
  • Exchange rate is down, but not far enough given the drop in commodity prices, and has further to fall to lift the moribund tradable sectors
  • Wage growth is more or less nonexistent, and inflation not concerning (appears RBA is happy to ‘look through’ a rise in import prices as the currency falls in value, rightly so in my view)
  • On present indications, the most prudent course is likely to be a period of stability in interest rates.

Nothing to get too excited about either way at this stage.

As I said when I launched this blog and soon thereafter began a series on Australian interest rates:

In a country like Australia, changes to interest rates tend to be quite effective in influencing economic conditions. Lower rates stoke borrowing, asset prices and consumption, giving way to higher rates, and vice versa. Why then are we drifting across a calm blue ocean of low interest rates?

Primarily due to the uneasy schism that has emerged in our economy. On the one hand we have the descent from what has almost certainly been the biggest terms of trade/investment boom in our nation’s history. On the other we have a raging house bubble boom. Which force prevails in this struggle will determine the short- to medium-term direction of interest rates.

For now, the RBA is happy to sit and wait for further indication of which force is gaining the upper hand.

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