No sign of a rate rise looming from the latest Reserve Bank of Australia board meeting minutes, so the slightly restrictive 4.75% cash rate remains on hold for another month or three, although the big test will come with next Wednesday’s CPI for the March quarter and then the April jobs data on May 12.
The minutes, released yesterday, show the bank saw no case to change the official cash rate at the April 5 meeting, given the patchy nature of the economy and with relatively high rates helping to contain inflation in the medium term.
The only figures not available for the meeting would have been the strong jobs data for March which was released later in the week of the RBA meeting.
The minutes didn’t impact the dollar which traded around $US1.047, down from $US1.056.
That fall was due to the higher volatility after Standard & Poor’s downgraded America’s credit outlook.
"Given the outlook for the economy, and in particular the high level of the terms of trade and the prospective further large increase in investment, members considered that this stance remained appropriate so as to ensure that the medium-term inflation outlook remained consistent with the target. Members therefore did not see a case to change the cash rate," the minutes said.
But the meeting did see considerable strength in the economy with surging export prices expected to stay high and stronger-than-average business investment offsetting weak retailing and housing sectors.
"The recent business indicators showed a somewhat mixed picture.
"Survey-based measures of current conditions were mostly around average, while forward-looking measures had picked up to be above average. Imports of capital goods had been trending up and business credit had risen in February, the first increase in nine months.
"Overall borrowing conditions remained tight, though liaison with larger businesses indicated that there had been some improvement in the availability of finance.
"A strong pick-up in business investment remained the central element in the medium-term outlook. Members again discussed the very strong outlook for investment in the resources sector, particularly in gas.
"Members noted that a major challenge was whether the economy could accommodate the expected high rate of investment without undue pressure on costs.
"Outside the resources sector, growth in investment was expected to be relatively modest," the minutes said.
The bank again made it clear that it will be looking through the short term price effects of the bad weather and flooding at the start of year (which should be apparent in next week’s CPI).
Japan’s triple disasters were also seen as having a temporary adverse impact, but followed by a later rebound in growth and activity.
"Members observed that recent events in Japan had increased the uncertainty around the near-term global outlook.
"There were also other continuing uncertainties, including the sovereign debt problems in Europe and the impact of higher oil prices on the large advanced economies where recoveries were less well established.
"In Asia, the challenges appeared to be in the direction of coping with strong growth and rising inflation (as we have noted in the past week).
"While it remained to be seen how these uncertainties would ultimately be resolved, the most likely outlook was that growth in the world economy in the period ahead would be around trend pace, or a little higher, and that the price of Australia’s main exports would remain at high levels for some time to come.
"Domestically, employment growth had slowed somewhat from the rapid rate seen in 2010, though the outlook for the labour market remained positive.
"It appeared that domestic demand was growing at a solid pace and was likely to continue to do so in the medium term, with stronger-than-average growth in business investment offsetting weaker-than-average growth in consumption and dwelling investment.
"While this combination was leading to considerable variation in conditions across sectors, it was broadly in line with the forecasts that the staff had had for some time.
"In the short term, however, the economic data were likely to be significantly affected by the earlier floods and cyclone.
"Headline inflation was likely to be quite high in the March quarter, while GDP would be held down, to a greater extent than earlier assumed, by the lost coal production and the delays in resuming mining operations.
"In reaching its decision, the Board would look through these fluctuations.
"Reflecting the Board’s earlier decisions and developments in financial markets, interest rates on both housing and business loans were a little above average levels," the minutes said.
