An interest rate cut is still possible at the April 7 meeting of the Reserve Bank board, but it might not be the certainty so many economists have been saying.
If the flow of information before the meeting is as positive about February as it has been about January, then there’s every chance a rate cut might be put off.
But there’s a suggestion that retailing might have had a weak month in February, which could tip the board’s hand on another rate cut, probably 0.25% at the moment.
The board will have February’s retail sales, building approvals and trade figures to look at ahead of the board meeting.
For that reason, they won’t be as ‘in the dark’ as they are on some months when the slew of major monthly stats comes after the meeting on the first Tuesday.
The release yesterday of the minutes for the March board meeting which left the cash rate unchanged at 3.25%, shows the RBA board has left the question of a rate cut open ended.
The minutes ended with the phrase "adequate flexibility for future meetings” on the question of rate changes.
Significantly, the minutes reveal that unlike previous meetings, RBA Governor Glenn Stevens did not take a recommendation for consideration.
In contrast, the minutes of the February 3 meeting revealed that "the recommendation to the Board was for a reduction in the cash rate of 100 basis points to 3.25 per cent".
This month no recommendation, so the discussion was allowed to range over the past few months of cuts and data flow and expectations about the near term.
That there was no recommendation reflected Mr Stevens and the RBA executive’s belief that after cutting by 4% (a record) since last September, a breather would be handy to enable an assessment to be made of the impact so far of the rate cuts and the first stimulatory package in December from the federal government.
The meeting noted and discussed the flow of poor news internationally and the clear weakening in the global economy since February, but sat pat.
"Early indications were that the monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect, but the size of this remained unclear and it would take some time for the full impact to come through," the minutes read.
"The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation.
"Members could see reasonable cases for both courses of action.
"On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged.
"Members believed this would leave adequate flexibility for policy at future meetings."
The meeting noted that the market had priced in a cut of 0.50%, but didn’t proceed. The market says there will be a cut of 0.25% or 0.50% at the next meeting of the board.
The sharper than forecast rise in the unemployment rate to 5.2% and the continuing stream of job cuts is a sign that the labour market is losing more of its strength as time goes on.
"Conditions in the labour market had continued to soften, with no growth in monthly trend employment in January.
"The unemployment rate to date had risen relatively gradually from its low of 4 per cent, though members noted that significant deterioration was forecast."
Retail sales in February were a bit better than expected, building approvals are higher for first home buyers, as is housing finance, but non-private dwelling construction has fallen sharply, as has other types of commercial property construction.
Significantly the next RBA board meeting will be held after the release of February data for retail sales, building approvals and the monthly trade (exports and imports) figures.
Housing finance for February and the Labour Force figures for March are out in the following two days.
And there was one line in the minutes that suggests the February retail sales might be surprisingly poor.
"Liaison conducted by the staff indicated weakness in retail conditions in February," the minutes read.
If that’s the case the retail sales figures, out six days before the board meeting are flat to down compared with January’s 0.2% rise, then the chances of a rate cut will rise. In fact even if building approvals (also out on April 1) show another solid rise in new home starts by private first home buyers, the RBA board is likely to take a look at the other approvals which have been dropping like a stone.
If it’s another bad month for property buildings and developers, that alone could help get a rate cut up.
