The Reserve Bank has confirmed that it has lowered its economic forecasts, but we will have to wait until early next month to learn them.
But there might be a message there that rate cuts are off for a while.
In fact the minutes of the April 7 RBA board meeting had nothing in them to confirm or deny that we could get more rate cuts later in the year.
Many commentators and analysts are forecasting 0.50% to 1% in cuts in the RBA’s cash rate now 3%.
On the basis of these minutes there won’t be a cut in two weeks time at the May meeting, and one is doubtful in June, after the Federal Budget.
Despite the rise in unemployment, there’s a hint that the 4.25% in cuts so far is enough for the time being: the RBA doesn’t want to send the economy surging off in an orgy of consumption without tackling unemployment.
Certainly the ‘steady as she goes’ line of thinking was reinforced by a speech RBA Governor, Glenn Stevens made in Adelaide yesterday (See excerpts below).
The lunchtime address was called "The Road To Recovery" and it was an upbeat speech that confirmed the economy was in recession (according to the RBA’s own way of assessing that).
That could be as much a signal that rate cuts are off the agenda for a while, or longer, as anything in the minutes published yesterday.
The minutes of the April 7 meeting show that the board was told "that there had been further downward revisions to the staff forecasts for growth and inflation. GDP was expected to fall in 2009 but increase again in 2010.
The revised outlook for growth, and the associated reduced level of capacity utilisation, would entail stronger downward pressure on medium-term inflation than previously forecast.
"As a consequence of the contraction in aggregate demand and output, capacity utilisation had continued to decline and the demand for labour had weakened.
"Members noted that the staff forecast for growth had been revised lower from that published in the February Statement on Monetary Policy. Inflation over the medium term was expected to continue to decline."
Something had to be explained to the board.
After all, the results of that downgrade had become public in a speech on March 31 by the bank’s Deputy Governor, Ric Battellino in Brisbane when he said: "the reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world. As such, GDP is likely to fall in 2009".
The next Statement on monetary policy is due out on May 8, which is when we get a sight of the new forecasts.
In the February MPS, the bank forecast that growth would be barely positive; it predicted growth of 0.25% in the year to the end of the June quarter and half a per cent over the year to December (i.e. calendar 2009). Non farm GDP would be zero in the year to June and 0.25% over calendar 2009.
The bank’s forecast of a larger than forecast fall in inflation was borne out in Monday’s Producer Price Index.
The 0.4% fall was a big slump from the December quarter and analysis published overnight by economists at Goldman Sachs JBWere showed it to be "the most rapid easing" of inflation pressures in the PPI, despite a sharp rise in import price costs (because of the lower dollar).
"Though the downside headline itself is quite striking, even this understates the rapid moderation in inflation pressure. – The ‘volatile items’ were actually stronger than our expectation. Instead the disinflation was in the more ‘sticky’ components, which we take to be more indicative of a broader and sustained period of disinflation."
They also said that’s likely to show up in the consumer price index tomorrow, although rises in the cost of fruit and vegetables should be watched for.
But that’s how the RBA seems to have been looking at inflation in the April board discussions, so that means the economy is following some of the newly drafted script (forecasts), which in turn means no immediate joy on when we can expect the next interest rate cut from a reading of the minutes of the Reserve Bank board meeting on April 7.
That meeting gave us an 0.25% cut and left the strong impression that from now on the central bank would react to changes in the existing economic picture, not what was anticipated would happen, as the bank has been doing since the global economy fell off a cliff late last year.
Because of the downgraded forecasts and the tentative signs of improvements in some parts of the various economies around the world, such as the US, UK (where house prices have stopped falling), the next rate movement might not happen until the central bank believes the current stimulus of higher government spending and the 4.25% of cuts, need some sort of boost to power the economy into a rebound.
Or there might not be a rate cut for months, if at all, if the economy bottoms in the next quarter and is dragging along the bottom.
Mr Stevens has another address for a month’s time: it’s a breakfast address to the Canadian Australian Chamber of Commerce in Sydney. A week later another speech from his Deputy, Ric Battellino, who was given the task late last month of revealing the RBA’s views that the economy was in recession, without using the term.
