Tomorrow’s jobs figures for August will provide the first test of the Reserve Bank’s small, but significant change in interest rate policy.
Instead of using the indeterminate "appropriate" to describe the current setting of monetary policy, governor Glenn Stevens qualified that by adding the phrase "for the time being".
Economists and analysts took that to mean that it’s a case of sooner than later for the next rate rise, but not yet.
The August jobs figures are expected to see a rise of around 20,000-25,000 jobs for the month and the unemployment rate either easing slightly, or remaining steady at 5.3%.
That’s about what the market thinks the RBA will be happy with, so it won’t cause a problem.
In fact the rate rise, normally the centre of market attention, was sidelined by the announcements yesterday afternoon by the three federal independents that determined who will govern Australia.
The Aussie dollar eased, as did the market and Telstra shares fell 1c to $2.85.
It should rise today as it will be perhaps the biggest beneficiary of the ALP retaining power.
Miners will come under pressure because of fears about the mining tax and the influence of the Greens (who don’t like mining) on the Gillard Government.
But the Reserve Bank is the real arbiter of independence in economic matters and a small change in the wording of its statement yesterday (see next story) indicates its stepped up its concerns about the state of the economy and cost pressures.
After the June quarter national accounts showed the economy grew by 1.2% in the second quarter, against 0.7% in the first quarter, speculation started again that a rate rise would happen sooner than the end of the year/early 2011 that many people had factored into their forecasts.
Second-quarter inflation rose by 0.6% from the 0.9% in the first quarter, but this pushed the headline rate out to 3.1%, above the RBA’s target band of 2%-3%.
But the underlying inflation rate fell to around 2.7% in something of a surprise for some forecasters, which has left the RBA less concerned about the immediate outbreak of cost pressures, apart from the impact of higher utility changes and the lift to tobacco taxes.
But then we got better retail sales figures for July, and upgraded figures for June, and stronger than expected consumption figures (especially for cars) in the June quarter national accounts.
Mr Stevens noted the faster growth rate in the statement yesterday:
"The global economy grew faster than trend over the year to mid 2010, but will probably ease back to about trend pace over the coming year."
But growth in China was moderating to a more sustainable pace and the main concerns remain Europe and the US, where growth is likely to slow over the coming year.
He said commodity prices "remain at very high levels, and the terms of trade have regained their peak of two years ago".
The last rate hike happened in May when the cash rate was raised to the current 4.5%.
The news saw the Aussie dollar ease locally from 91.70 to 91.50 USc.
"With growth in the near term likely to be close to trend, inflation close to target and with the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate for the time being," RBA governor Glenn Stevens said in the statement.
"Recent information suggests that the Australian economy has been growing at around trend pace.
"This has been helped by high levels of public spending over the past year but private demand has also been firming.
"The high level of the terms of trade is boosting incomes, which will tend to add to demand over the year ahead, while the effects of earlier expansionary policy measures will be diminishing. Indications are that business investment in particular could increase strongly.
"Domestic credit and asset markets present a more balanced picture than six months ago.
"Business credit has stabilised and while credit conditions for some sectors remain difficult, evidence is slowly emerging of more willingness to lend.
"Credit outstanding for housing has slowed a little over recent months, and the upward pressure on dwelling prices appears to have abated.
The demand for labour has firmed over the past year in line with improving growth.
"After the significant decline last year, growth in wages has picked up somewhat, as had been expected.
"Through to mid 2011, underlying inflation is likely to be in the top half of the target zone, while CPI inflation will probably be just above 3 per cent for a few quarters due to the impact of the tobacco tax changes."
