The Reserve Bank has moved from the promise of a possible further easing, to one of recognising that the current monetary policy setting "is appropriate given the economy’s circumstances".
So the cash rate is on hold at 3% and that’s it for the record loosening in monetary policy that saw the rate dropped 4.25% in a matter of months.
The post meeting statement from Governor Glenn Stevens finished with this paragraph:
"The Board’s judgment is that the present accommodative setting of monetary policy is appropriate given the economy’s circumstances. The Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for sustainable growth in economic activity and achieving the inflation target."
That is very different from the concluding paragraph of the July board meeting statement:
"The Board’s current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed. In assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity."
No more mention of ”some scope for a further easing of monetary policy".
But no rate increase is in prospect.
The bank still points to the fragility of the economy and the global financial system, even though things are looking up.
"Sentiment in global financial markets has continued to improve. Nonetheless, credit conditions remain difficult, and the effects of economic weakness on asset quality present a challenge. For the global economic recovery to be durable, continued progress in restoring balance sheets is essential."
But as he pointed out last week in a speech in Sydney Governor Stevens said in yesterday’s statement:
"Economic conditions in Australia have been stronger than expected a few months ago, with both consumer spending and exports notable for their resilience. Measures of confidence have recovered a good deal of ground.
"This suggests that the risk of a severe contraction in the Australian economy has abated.
"The most likely outcome in the near term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak.
"Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010."
That’s a description of an economy meandering while it recharges, rather than continuing to edge towards a cliff, as it was doing in the first few months of this year.
Sluggish economies with rising asset prices (well, housing), don’t need any more stimulation.
The rest of Governor Stevens statement said:
"With considerable economic stimulus in train around the world, the global economy is stabilising after an earlier sharp contraction in demand.
"Downside risks to the global outlook have diminished, though they have not disappeared and most observers expect only modest growth overall.
"There is tentative evidence that the US economy is approaching a turning point, but conditions in Europe are still weakening.
"Growth in China, in contrast, has been very strong in recent months, which is having an impact on other economies in the region and on commodity markets.
"Inflation is gradually moderating, given the earlier decline in energy and commodity prices, and the effects of weaker demand on prices and labour costs.
"Given the current prospects for demand and output, this moderation should continue over the year ahead.
"The higher exchange rate over recent months will assist this moderation, at the margin.
"Housing credit has been solid, and dwelling prices have risen over recent months.
"Business borrowing, on the other hand, has been declining, as companies have postponed investment plans and sought to reduce leverage in an environment of tighter lending standards.
"Large firms have had good access to equity capital, and access to debt markets appears to be improving."
Left unsaid for the moment was the question: what happens if all the stimulation around the world doesn’t produce a sustainable recovery in 2010 and we continue to drift for another year to 18 months?
That’s a question policymakers the world over know they could have to answer at some stage in the next year.
