As expected there was no rate change from the Reserve Bank yesterday and none are envisaged for the foreseeable future.
So the cash rate remains at 2.5%, for the ninth consecutive month, despite some signs of a pick-up in economic activity.
The decision to stay on the sidelines was widely expected by economists and financial markets.
"In the board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA governor Glenn Stevens said in the statement following the RBA’s board meeting yesterday afternoon.
"On present indications, the most prudent course is likely to be a period of stability in interest rates,” governor Stevens said. The wording was the same as the past couple of months, indicating the bank sees no change in the economy looking out into the new financial year, ahead of next Tuesday night’s Federal Budget.
The Australian dollar jumped just under a quarter of a cent to US93.17, then fell back to around 92.80. It then rebounded past 93 US cents in offshore trading and was around 93.60 cents in late US trading this morning.
That was despite a negative day’s trading on Wall Street and in European markets. That will see our market started lower today by more than 20 points.
The sell off on Wall Street was again driven by the big and popular tech stocks such as electric car maker Tesla and Twitter (down 16% alone) and the online review stock, Yelp, which fell 17%.
The Dow fell 0.8%, the S&P 500 fell by a similar amount, but Nasdaq lost more than 1.3 thanks to the selling in tech stocks.
Here, the trade surplus yesterday for March confirmed a solid start to the year for our exporters, and while building approvals were lower, the reason was once again a big fall in non private dwelling approvals, which is a volatile number.
Retail sales data, out later today, and the jobs figures for April which will be released tomorrow, will confirm the economy is still growing, but at nowhere near trend level (which is 3% to $3.25%).
The bank alluded to this in the governor’s statement which was notable for the change in emphasis on employment – which is now seen as having peaked.
"In Australia, the economy grew at a below-trend pace in 2013. Recent information suggests moderate growth is occurring in consumer demand and foreshadows a strong expansion in housing construction. Some indicators of business conditions and confidence have improved from a year ago and exports are rising.
"But at the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative, as firms wait for more evidence of improved conditions before committing to expansion plans. Public spending is scheduled to be subdued.
"The demand for labour has been weak over the past year and, as a result, the rate of unemployment has risen somewhat. More recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently.
"Growth in wages has declined noticeably and this has been reflected more clearly in the latest price data, which show a moderation in growth in prices for non-traded goods and services. As a result, inflation is consistent with the target. If domestic costs remain contained, that should continue to be the case over the next one to two years, 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 has picked up a little, while dwelling prices have increased significantly over the past year.
"The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.
"Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. 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."
