The Reserve Bank Board gathered today for the first time since early December and decided to leave the cash rate steady at 1.5%. All of the economists surveyed by Bloomberg last week predicted there would be no change today. Despite the passage of two months since the last meeting, there was little change in the tone of the commentary announcing the decision, although in parts it sounded slightly more upbeat. The main takeaway is that officials seem content with the outlook for the economy and the stance of policy.
The statement provides no guidance on the path for policy from here – some economists had hoped for signs that the Bank perhaps was leaning towards lowering the cash rate again sometime soon, but it was not to be. There was no clear bias in place back in December, either. The “guidance” at the end of today’s statement was similarly neutral - the Bank said merely that an unchanged cash rate was consistent with “sustainable growth in the economy and achieving the inflation target over time”.
Most of today’s commentary sounded familiar, although there were some modest rhetorical flourishes worth mentioning here. The first was a reference to “uncertainties” in regard to the global outlook, which could be interpreted as code for possible implications of the succession of policy decisions being announced by the new administration in the US, many of them contentious. Another was a mention of the factors leading to the dip in real GDP in Australia in Q3 being “temporary” – Bank officials expect a return to positive growth in Q4.
There was a longer discussion of inflation, given that the December quarter CPI data was released only a couple of weeks ago. Officials remain confident that inflation will return to the 2-3% target range over time. The other “new” comment today was tilted slightly to the more positive side – there was a mention of full time employment having picked up. The comments on housing were similar to those back in December, and again highlighted the considerable variability across regions. The reference to “brisk” rises in house prices was retained.
The unexpected fall in Australia’s GDP reported back in December probably will be reflected in a downgrade to the RBA’s growth forecasts when they are released in the quarterly statement on Friday, but this merely will be a reflection of the arithmetic of the past, not a reflection of the outlook. It already is clear from the more recent data that the economy will not have suffered another fall in GDP in the December quarter. Today’s statement says that the official inflation forecasts are “largely unchanged”.
There are some economists still expecting the RBA to trim the cash rate again this year, but today’s statement provided no hint of a move any time soon. The lingering financial stability risks associated with high and rising house prices in the major cities, which would be made worse by even easier policy, are an obvious constraint on the delivery of further rate cuts. The AICD view is that the next move from the RBA most likely to be a rise, not a fall, albeit not until early in 2018.