The Reserve Bank held interest rates steady yesterday, as expected, but forecast a rebound in economic growth from the fall in the September quarter GDP.
In fact the RBA said the result in the September GDP was “largely reflecting temporary factors.”
“A return to reasonable growth is expected in the December quarter, the bank forecast yesterday.
That’s after the solid growth in retail sales volumes (0.8% in the three months to December, a two year high), the record trade surplus for December and narrowing of the deficit for the quarter (and higher volumes) and signs that the recent subdued inflation may be ending.
The first post-meeting of the year statement from governor, Phil Lowe contained the latest economic forecasts that will feature in the first statement of monetary policy for the year on Friday.
Before then, Dr Lowe makes his first public speech of the year on Thursday night. He also has another speech on February 22 and makes his first appearance before the House of Representatives Economic Committee two days later.
His message in those speeches and the Monetary Policy Statement will follow closely on yesterday’s post meeting statement which was more upbeat than many economists had expected.
Headline consumer inflation is expected to rise to above 2% this year (from 1.5% in 2016), but the RBA says it’s preferred core measures will rise more gradually from the current 1.55%.
GDP is expected to rebound and reach 3% in the next year – from the 1.8% annual rate in the September quarter, starting with the three months to the end of the year.
Yesterday’s meeting was the first by the bank’s board since the release the September GDP data (in early December) that showed the Australian economy shrank by 0.5%, the first contraction since 2011.
That produced fears the country might slip into recession for the first time since 1991, with subsequent data last month showing consumer price growth was weak in the December.
But producer price are now rising, some domestically produced services and goods are seeing sharer than forecast price rises and the record trade surlus and surge in our terms of trade in the quarter means national income will jump sharply as well.
And the bank is looking for economic growth to return to the annual 3% rate this year.
“The Bank’s central scenario remains for economic growth to be around 3 per cent over the next couple of years.
“Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end.
“Consumption growth is expected to pick up from recent outcomes, but to remain moderate. “Some further pick-up in non-mining business investment is also expected,” the bank said.
Housing remains a big concern with the bank’s statement saying “conditions in the housing market vary considerably around the country."
"In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.
"Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors.
“With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments,” the RBA revealed.
The AMP’s chief economist, Dr Shane Oliver said in a commentary yesterday afternoon that "The RBA’s post meeting statement didn’t really provide anything new. The RBA seems a bit more upbeat about the global economy, sees the September quarter GDP slump in Australia as largely temporary, sees inflation remaining low and the labour market as mixed.”
"Somewhat surprisingly it signalled little change to its growth and inflation forecasts despite the September quarter growth slump. On growth it sees a return to reasonable growth in the December quarter (as we do) and continues to see growth around 3% in the next few years.
"Similarly, its level of concern around the property market does not appear to have increased despite a further pick up in lending to property investors and continued rapid price growth in Sydney and Melbourne. The RBA’s commentary around the property market was little changed from that seen in its December post meeting statement.
“Overall, the basic message from the RBA remains that it is comfortably on hold at present with a neutral bias regarding future rate changes.”
