As expected, the Reserve Bank left interest rates on hold with the cash rate steady on 2.5% – and no sign of any change in the foreseeable future.
In fact the RBA’s stance is virtually the same as we saw after the February board meeting, and the release of the first monetary policy statement of the year three days later.
Governor Glenn Stevens first parliamentary testimony on Friday will see the bank’s policy further elaborated on – but don’t expect any change.
The most important part of the statement released yesterday afternoon was at the end when the Governor made the following comments.
"The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably.
"If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate.
"Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth remains low overall but is picking up gradually for households.
"Dwelling prices have increased significantly over the past year. The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards.
"Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.
"In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates," Governor Stevens said.
Reserve Bank: No move on rates for quite a while
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Data released yesterday showed no real change in what’s happening in the economy – the current account will have a positive contribution to 4th quarter economic growth of around 0.6% (on a volume basis, with exports up and imports down).
Building approvals were a bit stronger with a sharp rise in seasonally adjusted figures, especially for private housing. But the seasonally adjusted data is very volatile and the January figures were no different.
The ABS reported that while total dwelling unit approvals in January rose by 1.3% in trend terms, they jumped by 6.8% and 6.8% (seasonally adjusted) over December, to be up 28% and 35% over the year to January (the trend rise of 28% clearly confirms the boom is gathering pace).
Approvals for private sector houses grew by 8.3% (seasonally adjusted) for January (after the 1.9% fall in December), while approvals for private sector apartments rose by 4.6% (also seasonally adjusted).
The big seasonally adjusted rise was obviously down to ‘bunching‘ with a lot of approvals held over from December for processing in the New Year. Watch for a fall or a slowing in that pace in February and perhaps March.
There was nothing in those figures to worry the Reserve Bank.
And there was a tiny bit of "jawboning‘ by the RBA on the value of the Aussie dollar, which responded by remaining over 89 USc in local trading yesterday afternoon.
