No rate rise and no rate cut. The Reserve Bank has explained while its prudent to wait longer than many in the market thinks to see if an increase should occur this year.
The forecast last Friday from Westpac and its chief economist Bill Evans has been skewered by the two week old minutes of the July 5 Reserve Bank board meeting.
In them, the discussion clearly doesn’t even contemplate the remote possibility of a rate cut.
The key paragraph in the minutes, so far as interest rates are concerned, was this:
"Members noted, however, that the flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time."
Note the use of the word "prudent".
Not also they talk about inflationary pressures, not the weakness in some parts of the economy.
It indicates the bank now sees no reason to stick rates up if the data is suddenly negative (say a big rise in the June quarter CPI).
That’s because other data has been sufficiently weak that the upward pressure on inflation from the wide economy might have eased.
"The multi-speed nature of the Australian economy was clearly evident in recent economic data," the minutes continued.
"The resources sector remained strong, as did some service sectors. However, household cautiousness and the high exchange rate were having a dampening effect on a number of other sectors.
"Supply-chain disruptions, due to events in Japan, had also caused a fall in motor vehicle production and sales.
"Survey measures of overall business conditions and confidence showed significant differences across industries, but overall conditions remained around their long-term averages.
"The household sector continued to be cautious in its spending and borrowing behaviour.
"Following a solid rise in April, data for retail sales for May had shown a fall, although imports of consumption goods (excluding motor vehicles) had been strong over the past couple of months.
"Despite official data recording quite strong growth in disposable income and overall measures of consumer sentiment being around their long-run average, households’ perceptions about the state of their finances remained well below average.
"There had been little growth in nominal wealth over the past year, with housing prices having softened and equity prices lower recently. Members observed that this was in contrast to the experience of much of the past two decades.
"Housing credit growth had eased further, to its slowest pace in many years, although housing loan approvals had picked up in April and May."
So no boom or competition for resources here: in other words, the central bank will sit and wait and look at figures, such as next week’s consumer price index (CPI) data for the June quarter.
But a bad figure (quarterly rise of 1% or more) won’t necessarily see immediate pressure for a rate rise at the August 2 board meeting.
That’s because the RBA now sees extra time to "assess the likely strength of inflationary pressures".
This Friday’s import and export price indices and then next Monday’s Producer Price Index and then the CPI on Wednesday (July 27) will all play a part in the bank’s thinking.
And with coal exports taking much longer to recover from the Queensland floods, domestic employment growth easing and Europe’s sovereign debt crisis worsening, the RBA is happy to keep interest rates where they are.
The Reserve Bank said the recovery of coal exports from the Queensland floods was taking significantly longer than expected and a return to full capacity could be delayed to next year.
Disruptions in production locally and global uncertainty may hit domestic growth this year, the RBA says.
"The delays in the recovery of coal production and supply-chain disruptions resulting from the Japanese earthquakes and tsunami also meant that GDP (gross domestic product) growth through 2011 was unlikely to be as strong as earlier forecast, with some of the recovery being pushed into the early part of 2012."
That means new, lowered GDP forecasts will be made to the August 2 board meeting, then released three days later in the 3rd Statement of Monetary Policy for the year.
The RBA noted that the downside risks associated with a possible adverse European financial shock looked more significant than had been the case a few months ago.
However, Australian credit markets were still unaffected by the global uncertainty over the past month, the Bank said.
"Issuance by Australian banks, both secured and unsecured, had remained solid and pricing had not materially changed."
But China remains the key and last week we had confirmation that it is not crash landing, as many excitable American and European analysts might think.
The RBA board meeting was held well before the release of China’s growth, trade, production and inflation data for June and the June quarter.
"Growth in investment and exports remained strong, while growth in industrial production and retail sales had moderated in recent months," the RBA said about China, based on data up to May.
"The efforts of the authorities to slow demand through tighter monetary policy and administrative controls were having an effect, with growth in credit and property prices slowing notic
