Barring any unforeseen disaster in financial markets, or a dramatic slump in exports (or the Chinese economy, which is still quite possible), the Reserve Bank looks like it has finished its sustained and most dramatic rate cutting programming ever.
Despite confirming that Australia is in recession, and forecasting negative growth for the 2009 financial year and calendar 2009, the RBA’s latest board meeting minutes shows no sign of any gloom.
In fact there’s an optimistic tone in many of the comments (unattributed) that are seemingly at odds with forecasts for a 1.5% contraction in the year to June and a 1% contraction in the year to December.
And, while the bank acknowledges that unemployment has further to rise, there’s no sense of pessimism about that, or about the economy generally.
There’s lots of cautionary statements, but no sense that the RBA thinks the economy faces tougher times.
In fact upbeat central bankers are more inclined to be suspicious about the sustainability of the positive factors, although in this case, there’s still more of a wary glance at the rest of the world and wondering what other shocks lay in store for Australia from offshore.
These minutes continue the apparent ‘difference’ with the Federal Government over the outlook.
Wayne Swan and Prime Minister Rudd have been far more alarmist and dramatic in their warnings (and so have some commentators and members of the Opposition, for their own, obvious reasons).
But the RBA is far more measured once again in these minutes; for instance there’s no discussion of budget deficits and the like.
That might come after the June 2 meeting, but the meeting seems to be telling us that even the RBA has been surprised by the way some things have gone in the economy in recent months (such as trade volumes).
But one thing that stands out is the apparent ‘impact’ the release of building approvals figures for March had on the May 5 board meeting of the RBA board.
The minutes of the meeting make direct reference, twice to the release of the figures.
"Turning to the housing sector, building approvals had recently picked up, which was confirmed by figures for March released during the meeting, with a significant increase in first-home buyers purchasing newly constructed homes."
And, "A number of indicators suggested that the outlook for business investment was quite weak: imports of capital goods had declined sharply; business surveys revealed that expectations for business investment were well below average; and private non-residential building approvals had fallen sharply in the early part of 2009, though data released during the meeting suggested a significant rise in the month of March".
It is a common occurrence for some figures to be released at 11.30am by the Australian Bureau of Statistics, or released by other surveying groups, but reference to those in board minutes have been so far rare.
That the two were on the whole positive added to the surprising upbeat tone of the meeting, as portrayed by the minutes.
Take these other references:
Members noted that despite significant falls in investment expected in the current and following year, the level of investment as a share of GDP was not expected to decline to the levels seen in some previous downturns.
Business credit had contracted in three of the past four months, though total business debt funding was not as weak, as some companies had accessed capital markets directly.
"Turning to the external sector, the terms of trade were declining because of lower commodity prices, but even so were at a historically high level.
"Export volumes had held up much better than expected; they were estimated to have been stable in the March quarter. Members noted the key role of China in Australia’s export performance."
And there’s a couple more
"
The wide range of economic data considered by the Board generally pointed to some improvement in confidence and economic activity in a number of countries.
"The strongest signs were in Asia, with production in China rebounding particularly quickly.
“While it was too early to be confident about the durability of this trend, the evidence was accumulating that the maximum rate of global economic contraction may have passed.
"Members also noted the much better tone in financial markets.
"Share prices had risen strongly in all countries in recent weeks and credit spreads were declining noticeably.
"Businesses had been able to raise more debt in capital markets and banks, including those in Australia, had been able to issue some non-guaranteed debt in their home markets.
"Sentiment nevertheless remained fragile and could easily be disturbed by adverse news.
"In the case of the Australian economy, members observed that there were signs that the economic stimulus that had been applied was supporting demand.
"Overall, the Australian economy was likely to record better outcomes than most other advanced economies in 2009 and 2010, reflecting the healthy state of the domestic banking system and effectiveness of the macroeconomic policy stimulus to date"
All this upbeat (relative to what we have seen earlier in the year and in late 2008) commentary had the logical result: no rate cut
