As expected the Reserve Bank kept its cash rate on hold at an all-time low of 1.5% in the final board meeting presided over by Governor Glenn Stevens yesterday (his 110th).
The decision means speculation will focus on the November meeting of the bank board, and not next month’s meeting which will be the first to be resided over by the incoming Governor, Dr Phil Lowe. The November meeting will have the September quarter inflation data to consider with (that’s out in late October) and the bank’s own inflation and growth forecasts as well.
The RBA governor showed no bias towards cutting rates in the coming months in his statement either, giving further indications the bank wait until November or early 2017?
The decision saw the Australian dollar jump to a high of 76.34 – it had been rising from just over that level all morning in the lead up to the RBA announcement at 2.30pm.
In contrast, the ASX started sliding just before the announcement and continued into the red in the wake of the 2.30pm statement.
Mr Stevens said in his final statement yesterday that recent data suggested overall growth was continuing, despite a large decline in business investment, helped by growth in other areas of domestic demand and exports.
“Taking account of the available information, and having eased monetary policy at its May and August meetings, the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” Mr Stevens said in yesterday’s statement.
“(R)ecent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports. Labour market indicators continue to be somewhat mixed, but suggest continued expansion in employment in the near term.
"Inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
"Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
"Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. The best available information suggests that dwelling prices overall have risen moderately over the past year and growth in lending for housing purposes has slowed. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities,” Mr Stevens said. Late yesterday, the AMP’s Chief Economist, Dr Shane Oliver wrote in a note that:
"Perhaps a surprising aspect of the RBA’s statement is its relatively sanguine comments regarding the housing market. I would have thought the bounce back up in auction clearance rates in Sydney and Melbourne and renewed strength in housing finance would suggest that this year’s rate cuts have reinvigorated the already hot property markets in those cities suggesting the case for another bout of RBA “jaw boning” and possible APRA action to cool things down again. At this stage the RBA appears more comfortable in waiting for surging apartment supply to cool things down.
"We remain of the view that the RBA will cut rates again at its November meeting when it reviews its economic forecasts after the release of the September quarter inflation data in late October. The risks to inflation are on the downside thanks to underlying deflationary pressures globally and record low wages growth domestically and the $A is still too high and at risk of further appreciation given the Fed’s endless delays in raising rates again.
"However, with economic growth holding up very well – data for public spending, sales, profits and inventories released over the last few days points to June quarter GDP growth accelerating further to 3.5% year on year – this is a close call and is now critically dependent on seeing a lower than expected September quarter inflation result. Either way a cut in the cash rate to 1% or below and the adoption of quantitative easing looks very unlikely in Australia", Dr Oliver wrote.
