With China’s coronavirus worsening, markets selling off, the Aussie dollar at a decade low and more worries about the health of the economy, the Reserve Bank is not expected to touch the interest rate lever at its meeting tomorrow.
The RBA is still waiting for the three rate cuts last year to have an impact – so far except for housing, the impact has been minimal.
But if the problems worsen, a rate cut as early as March can’t be ruled out, especially if Australia is being battered by the problems in China where the country is now being slowly isolated by nervous airlines and other businesses, and governments, such as the US which has banned anyone from the impacted areas of China was coming to America.
In fact, the RBA will want to keep a rate cut or two up its sleeve (it only has two more left with the cash rate at 0.75% and the bank having to pay banks 0.25% on the reserves they leave with the RBA each day) in case the situation in China worsens and there is a major economic impact n Australia.
And then there is the still unknown impact of the bushfires on the economy – the RBA has to leave room to accommodate that fallout.
By the end of the week though we should have a good idea what the RBA thinks where the economy is headed with several major updates to be released and two speeches from Governor Phil Lowe
Friday saw further evidence that the economy is staggering towards recession – credit growth slowed to just 2.4% in 2019, down from 4.3% at the end of 2018 and the slowest annual rate for a decade.
And month on growth in credit of 0.2% remained at multi-year lows with business lending at near-record post-GFC lows and home lending showing a small rise in December for owner-occupied loans, but no growth at all (again) for investor loans.
While labour force data for December is still OK, retailing is weak with several collapses over summer, the full impact of the bushfires won’t be known for a month or (but has already hit retail wine, tourism, travel, and education).
This week sees data on building approvals for December released today and retail sales (vital, will the 0.9% lift in November be repeated or will it slide?) and the trade account on Thursday (both for December).
Figures on car sales for January will also be issued (weak for another month?), house prices for last month (today) and final surveys of manufacturing and service sector activity as well.
Both will be close to if not at record lows, as the flash surveys released 10 days ago highlighted.
The inflation data for the December quarter and 2019, released last week was weak and confirmed that inflation through the year was unchanged from 2018 and much of that was due to officially sanctioned price rises for tobacco, alcohol and a string of government fees and charges. parts of the economy in retailing especially, are seeing intensifying price deflation.
Governor Philip Lowe issues his usual post-board meeting statement on Tuesday. That will contain some hints on new forecasts for 2020 to be released in the first of four Statements On Monetary Policy for 2020 on Friday morning.
Dr. Lowe has his first major speech in Sydney on Wednesday at lunchtime and then makes his first appearance before the House of Representatives Economics Committee in Canberra on Friday morning.
