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Sixteen Straight As RBA Shifts Focus To 2018

No move on interest rates from the Reserve Bank yesterday, so the rate rise speculation spills over into 2018, or 2019 in the case of a forecast from Westpac.

The news was widely tipped and had no impact on the market (which was down 0.2% despite he rise in iron ore prices) or the currency ahead of today’s release of the September quarter’s National Accounts and GDP figures.

Yesterday’s data on the September quarter current account and government spending data will have little positive impact on the GDP result, in fact the impact could be a touch negative and could see the quarter on quarter GDP figure cut to around 0.5% from the previously estimated 0.7% and he annual rate just under 3% instead of just over.

Retail sales figures for October, released yesterday by the Australian Bureau of Statistics showed a seasonally adjusted rise of 0.5% (a big relief after he weak September quarter and no growth), but a trend fall of 0.1%. Naturally the market focused on the rise which was higher than the 0.3% forecast.

The post-board meeting statement from RBA Governor Phil Lowe was, if anything a touch more upbeat, while still worrying about low wages growth, low consumer spending and low inflation. But the more upbeat tone was evident in the statement.

The AMP’s chief economist, Dr Shane Oliver reckons a rate rise is a long way off, saying in a note to clients yesterday afternoon “(W)e remain of the view that the RBA won’t start raising interest rates until late next year at the earliest.”

And Westpac repeated a previous forecast that it doesn't see any rate rise next year, or 2019. The Commonwealth Bank reckons the first rate rise could happen in late 2018.

"Recent data suggest that the Australian economy grew at around its trend rate over the year to the September quarter. The central forecast is for GDP growth to average around 3 per cent over the next few years. Business conditions are positive and capacity utilisation has increased, Dr Lowe said in yesterday’s statement.

"The outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time. Increased public infrastructure investment is also supporting the economy.

"One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.

"Employment growth has been strong over 2017 and the unemployment rate has declined. Employment has been rising in all states and has been accompanied by a rise in labour force participation. The various forward-looking indicators continue to point to solid growth in employment over the period ahead.

"There are reports that some employers are finding it more difficult to hire workers with the necessary skills. However, wage growth remains low. This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time.

"Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. The Bank’s central forecast remains for inflation to pick up gradually as the economy strengthens,” Dr Lowe said.

It was the 16th month in a row that the RBA has sat on its hands so far as rate movements are concerned.

The need for a rate rise to further cool housing markets was partially offset by new figures from the Australian Prudential Regulation Authority yesterday showing interest-only housing loans again fell in the three months to September 30.

The statement from Dr Lowe reinforced the APRA data, saying:

"Credit standards have been tightened in a way that has reduced the risk profile of borrowers. Nationwide measures of housing prices are little changed over the past six months, with conditions having eased in Sydney.

"In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities.”

Even though the value of the Aussie dollar dipped las month, it is still a bi high for the RBA comfort, meaning lower inflation for longer and perhaps slower growth?

"The Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast,” Dr Lowe again said in his statement (a point he has bee making for months).

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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