Interest rates in neutral for a bit longer?
That’s a possibility after the Reserve Bank board minutes for the February 2 meeting were released yesterday and the January National Australia Bank business survey was also released.
Both gave slightly conflicting views of where business was placed, although the bottom line remains that monetary policy considerations "remain finely balanced" to use the phrase the RBA has selected for the time being to describe how close we are to rate rises, or no moves.
That means rate decisions will be a month to month event, unless there’s a flow of economic data that points heavily one way or the other.
The more up to date survey on business conditions and confidence from the National Australia Bank seem to suggest a slowing in activity in January.
The January survey of business showed a sharp rebound in confidence, partly reversing December’s big fall, but also revealing a "significant" fall in business conditions.
Business conditions had remained solid in December while confidence fell, but the moves were reversed quite markedly in January, according to the NAB. That came after last Thursday’s surprisingly strong January employment figures, with the unemployment rate down to 5.3% and 52,700 jobs created.
The NAB commented: "Last Thursday’s labour market report has clearly increased the risk of a March move, while today’s survey results probably move in the other direction". In other words, leaving the policy decision ”finely balanced".
The RBA takes this NAB survey seriously: it referred to it in its latest minutes
"Surveys suggested that business conditions remained firm, though the NAB survey, which became available during the meeting, suggested a significant fall in business confidence back to around average levels."
Now confidence is up and conditions are weaker, and it is the conditions that are the more important.
The RBA minutes said:
"As at the previous meeting, members considered the policy considerations to be finely balanced. Members expected that, if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary.
"But they did not regard that outlook as requiring an increase at every meeting, and they saw the earlier moves to begin withdrawing monetary stimulus promptly as affording the Board a degree of flexibility in its subsequent decisions.
"This allowed the possibility of waiting to receive some more information on how the economy was responding to the monetary tightening that had already occurred. Such a course would also allow time to monitor events overseas.
"Members noted that many market participants expected a further increase in the cash rate at this meeting.
"They concluded that, on balance, the stronger case was to leave the cash rate unchanged for the time being. "
And the NAB made a good point: "Every (RBA board ) meeting in 2010 is probably live and a decision will very much be data dependent.
"In other words, we are back to normal policymaking, as we pointed out during the run of rate rises in November-December."
While this "finely balanced’ state of monetary policy is not such a shock, what was a surprise was the downturn in business conditions last month.
The NAB said: "Business confidence jumped 7 points (to an overall reading of +15 points) largely reversing last month’s 11 point fall. Higher confidence was most evident in manufacturing, finance & business services and personal & recreational sectors.
"As such confidence appears to be stabilising at surprisingly high levels.
"Business conditions, on the other hand, fell significantly – down 7 points to +3 index points. That largely reflects large falls in trading conditions (down 14 to +3 index points) and profits (down 10 to +2 index points).
"Labour market conditions were broadly unchanged (down a point to +6 points).
"The falls in business conditions were very broadly based – with only wholesaling improving. Particularly sharp falls were again reported in retailing and mining. Similarly, forward orders fell sharply – down 11 to -4 index points.
"As such this is one of the sharper falls in recent times and takes orders back to levels not seen since mid 2009. Export sales also remained poor (-12 points).
"In terms of business outcomes the Survey is clearly signaling a relatively slower start to 2010 from the very high rates of growth in late 2009.
"It also appears that the slowing was unanticipated in that the falls were heavily concentrated in sales and profit levels.
"Thus trading conditions fell by a large 14 points and profits by 10 points.
"Capital expenditure remained weak – with the index moving further down.
"Credit conditions also eased further – with the difficulty in finding finance index at 4 points (5 previously). Those not wanting finance moved significantly higher to 47% (37% previously).
"Labour costs increased again – up 0.9% on a quarterly basis (0.5% last month).
"There has now been a significant shift up in wage costs from the bottom of the cycle in mid 2009.
"The annual rate
