Well, for a central bank that spent the last three months of 2013 moaning and groaning about the high value of the Australian dollar – and even warning of possible intervention, yesterday’s minutes from the Reserve Bank’s March board meeting were remarkably devoid of any serious mention of the currency and its value – which remains above 91 USc this morning.
The warnings from Governor Glenn Stevens in a speech, and then an interview with The Financial Review (in late December), in which he suggested a rate of 85 USc for the dollar ( (it fell to a low of 86.80c late in 2013), along with comments in board minutes and the final Statement of Monetary Policy for last year (In November) – helped push the currency down under 90 USc and kept it there into early 2014.
But as the turmoil in emerging markets and then Ukraine emerged in January and February, the currency has edged higher and remained in the range of just under 89 USc to a high of 91.36 USc overnight – its 2014 high so far.
There was little mention of the currency in the minutes of the February board meeting – the first for 2014. And the latest minutes contained one brief mention.
"The Australian dollar had appreciated a little, although it remained around 14 per cent below its peak in early April 2013." And that was that – no talk about it would be ideal if the value was lower (closer to 85 USc?) In fact it seems the central bank might have resigned itself to accepting the currency is probably not going to go much lower in the short term.
Helping this week was the about face from Westpac and its chief economist Bill Evans on his previous forecast two rate cuts – now there’s none and the cash rate of 2.5% will remain steady for some time (he reckons the rate will rise in 2015, but that’s up in the air).
In fact the minutes make clear the bank is guardedly content with how the economy is going.
It knows the transition from mining investment boom to a broader growth base from the rest of the economy, will take time and won’t be as smooth as many analysts envisage.
But it seems to believe there are a few factors at work that are not fully appreciated by many in business and on the conservative side of politics – the most important being lower wages, thanks to the weak labour market. In fact it was top of the agenda when it came to talking about the state of domestic economy.
"Members began their discussion of the domestic economy with the labour market. They noted that wage growth remained subdued, in line with the weak conditions in the labour market and relatively low consumer and union inflation expectations.
"The wage price index rose by 0.7 per cent in the December quarter, to be 2.6 per cent higher over the year, the lowest year-ended outcome since the series began in the late 1990s. Wage growth in the public sector over 2013 was around its slowest pace since 2000, consistent with ongoing fiscal restraint.
"Business surveys indicated that wage growth in the March quarter was likely to remain subdued, which was consistent with liaison reports that firms were having little difficulty finding suitable labour.
"The unemployment rate had increased to 6 per cent in January, continuing its gradual increase of the past 18 months, while the participation rate had declined significantly since the middle of the previous year, largely because of a decrease in male participation.
"The level of employment was little changed over the past year, although total hours worked had increased. Members noted the recent high-profile announcements of future job losses against the backdrop of the 400,000 to 450,000 people who leave employment each month and the similar number who take up employment.
"They discussed the potential for the extensive coverage of these job losses adversely to affect consumer confidence. At the same time, there was evidence that forward-looking indicators of labour demand had stabilised, following earlier declines to low levels.
"Growth in household spending looked to have picked up slightly in the December quarter, although the pace of growth was expected to remain a little below average for a time. Liaison suggested that the stronger retail sales seen in the latter months of last year had continued into the early part of this year, though sales growth may have eased somewhat," the minutes said.
And then there’s the housing boom – especially construction, which will be the main driver of growth for the economy as the mining investment boom fades. The minutes said:
"Members observed that conditions in the established housing market had remained strong. Housing price inflation had declined somewhat from the fast pace recorded in 2013, although the data were less informative around this time of year owing to relatively low turnover.
"Ongoing strength in the established housing market and low lending rates were expected to support new dwelling activity.
"Dwelling investment was expected to record a slight decline in the December quarter, but a strong increase in approvals for residential buildings over recent months – both for higher-density and detached dwellings – pointed to a substantial increase in dwelling investment in subsequent quarters. Loan approvals and first home buyer grants for new dwellings had also increased of late.
"Members noted that construction firms were optimistic about the outlook and had reported a pick-up in enquiries from prospective new home buyers," the minutes read.
In fact the building approvals and housing finance data for January have underlined the continuing strength of the housing rebound.
And finally, the RBA board made particular point to tell the market that the big fall in mining investment seen in the December quarter investment figures wasn’t a big shock:
"In the first reading for 2014/15, the ABS capital expenditure data suggested that a small improvement was in prospect for non-mining business investment. Members noted that the ABS capital expenditure survey reported that mining investment was expected to decline sharply in 2014/15, which had already been embodied in the Bank’s forecasts for some time," the minutes said.
