As expected, the Reserve Bank sat on interest rates at yesterday’s meeting and the statement from Governor Glenn Stevens gave no hint about when that stance might change.
But his statement did indicate the RBA’s previous forecasts for the economy for the next year and a bit would not be met, meaning there will be a revision downwards for next month’s crucial meeting.
"The recovery will boost output over the months ahead, and there will also be a mild boost to demand from the broader rebuilding efforts as they get under way, but growth through 2011 is now unlikely to be as strong as earlier forecast.
"Over the medium term, overall growth is still likely to be at trend or higher, if the world economy grows as expected," Mr Stevens said.
That part of the statement (and an admission that other growth indicators have cooled recently) took the Australian dollar down by around half a cent to $US1.0680 at the close in Sydney.
The new forecasts will be based on the current spate of weak data, the June quarter CPI numbers and offshore figures, with growth estimates from the EU, China and the US and Japan to be delivered by the time of the August 2 meeting.
Three days later the new forecasts and commentary will be issued in the third Statement of Monetary Policy for 2011.
It was the second statement (and earlier post RBA board meeting statement from Mr Stevens) in May that saw the bank and markets on to Rate Rise Looms alert, that was never fulfilled.
In that statement, it forecast the economy would grow by 4.25% by December 2011 and for inflation to be above 3% by late 2012, meaning action had to be taken soon to lift rates.
That forecast assumed that the very fast growth would continue into 2012, despite at least one and maybe two interest rate rises.
Now the RBA seems to have adopted a considerably more subdued outlook, thanks to a slower pace of international growth in the June quarter and more cautious Australian households.
Now it seems it’s rate watch time.
Three senior RBA officials appear in public this month, starting with Assistant governor Guy Debelle (financial markets) in Adelaide on Friday, his counterpart in charge of the financial systems Malcolm Edey on July 25 and a day later with Governor Glenn Stevens who makes an annual speech in Sydney.
The ANZ said on Monday it now saw no rate rises this year and the first in early 2012. Quite a few other economists hopped on that train after the statement from Mr Stevens was issued.
As we saw with the trade account yesterday, the resources boom is continuing and will go on growing into 2012.
It is generating shortages of labour, materials and capital that could come on top of inflationary pressures boosted by state government-driven higher electricity and water charges, leaving the RBA no option but to tighten, regardless of what’s happening in the wider economy.
The RBA said yesterday that "Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent.
"Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term.
"Reports of skills shortages remain confined, at this point, to the resources and related sectors.
"After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.
"Credit growth remains modest.
"Signs have continued to emerge of some greater willingness to lend and business credit has expanded this year after a period of contraction.
"Growth in credit to households, on the other hand, has slowed. Most asset prices, including housing prices, have also softened over recent months.
"Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year.
"However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months.
"In underlying terms, inflation has been in the bottom half of the target range, though a gradual increase is expected over time.
"At today’s meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate.
"In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation."
The general thrust of that part of the statement was virtually unchanged from a month ago: cautious, and waiting with the finger still on the rate rise trigger.
But an unwillingness to pull it precipitately.
