The Reserve Bank Board met today to consider the stance of monetary policy and decided to leave the cash rate steady at 1.5%, as all surveyed economists had anticipated. It is now approaching twelve months since the RBA last lowered the cash rate to its current record-low rate, back in August last year. RBA officials today opted to stare down what will likely be very weak Q1 GDP data tomorrow, when the National Accounts are released.

There was no realistic expectation today that the tone of the RBA’s commentary would change either, and so it played out. Indeed, the statement today sounded very familiar, with only minor changes in the language. As before, there was no explicit guidance on the likely path of interest rates. The statement said merely that the current stance of policy is “consistent with sustainable growth in the economy and achieving the inflation target over time”.

On domestic conditions, the RBA continues to assert that economic growth will return to a “trend-ish” rate of about 3% (the same rate Treasury assumed in the recent Federal Budget), although officials expect softness in the annual GDP growth rate in the near-term. As before, the RBA describes conditions in the labour market as mixed, with low wages growth a key drag on household spending. On the positive side, though, the RBA believes the transition away from previously booming mining investment is almost complete.

Importantly, on housing, today’s commentary indicates that officials believe the recent tightening of macro-prudential and lending conditions are combining to ease the imbalances associated with high house prices and debt. The statement still says that house prices are rising “briskly” in some markets (while falling elsewhere), but there is the acknowledgement today that conditions may be easing in the previously hot housing markets on the east coast.

On global issues, today’s commentary sounded upbeat, as it has for much of this year. Above trend growth is expected in advanced economies, alongside tightening labour markets and rising inflation. This helps to explain why the US Federal Reserve already has raised interest rates, with more increases to come. The RBA acknowledges the boost to Australia’s national income from higher commodity prices, but notes the recent declines in coal and iron ore prices.

The RBA’s decision to leave the cash rate steady today is uncontroversial, but might take more explaining tomorrow if the GDP report shows the economy has contracted in Q1, as some economists now forecast, following the weak trade data released earlier today. Board members will not have had a preview of the data during their gathering today but, like the rest of us, will have had a pretty good idea that GDP growth will have been weak, possibly even negative.

The RBA looked through the “shock” fall in real GDP revealed six months ago, and probably will do so again, knowing that GDP data is rooted firmly in the past. Indeed, more green shoots of economic recovery have emerged since the end of Q1, including higher levels of business confidence and a small lift in investment. The RBA will remain alert to downside risks, but the lingering excesses in housing, even if they have eased a touch, will continue to make it difficult for the RBA to lower the cash rate again any time soon.