As expected no interest rate move from the Reserve Bank yesterday and none is expected now until perhaps early next year.
Later this morning the Australian Bureau of Statistics (ABS) will release the December quarter National Accounts which will show modest growth of around 0.5% or 0.6% quarter on quarter and annual growth of between 2.2% and 2.6%.
In other words, even though the GDP figures will be historical, there will be nothing in the National Accounts to upset the RBA.
Certainly yesterday’s January report on retail sales from the ABS showing a rise of 0.1% (compared with a rise of 0.4% in market forecasts) after December’s 0.5% slide, will be enough to continue RBA concerns about the strength of consumer spending.
It was the 19th month in a row that the RBA held rates, having last cut them in August 2016.
In a post meeting statement RBA governor Philip Lowe said unemployment growth was expected to continue but that low wage growth was “likely to continue for a while yet”.
Mr Lowe added that inflation is “likely to remain low for some time reflecting low growth in labour costs and strong competition in retailing. The RBA still expects a gradual pick-up in inflation as the economy strengthens. The central forecast is for [consumer price index] inflation to be a bit above 2 per cent in 2018.”
Mr Lowe said in yesterday’s statement "The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.” That’s a view the bank has been saying for a number of months now.
The AMP’s Chief Economist, Dr Shane Oliver wrote yesterday after the rate decision was announced;”On the one hand the global economy looks good, business conditions are strong, non-mining business investment and infrastructure spending are increasing, further export growth is expected, jobs growth is strong and the RBA still expects to see stronger economic growth and inflation.
“But on the other hand uncertainty around consumer spending remains high (as highlighted by today’s retail sales data showing growth of just 2.1% over the 12 months to January), wages growth remains low, inflation remains low, the $A is arguably too high and the RBA seems a little bit less upbeat on growth than it did a month ago.
“All of this supports the case to leave rates on hold and with the RBA still expecting progress in reducing unemployment and getting inflation back to target “likely to be gradual” its likely to remain on hold for some time to come.
“We have been expecting a rate hike later this year, but the risks are increasing that the RBA won’t start raising rates until sometime in 2019,” Dr Oliver wrote. The NAB is starting to think that way and it wouldn’t surprise to see more economists believe that.
