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Little To Sway RBA Today

The Reserve Bank will leave rates on hold for the 19 the month in a row at its March meeting. There is nothing in the data to support a rate rise.

Business conditions and confidence remain solid (as we are seeing with the monthly NAB surveys), business investment is recovering, jobs growth is continuing and while the RBA is forecasting stronger growth and inflation later this year and into 2019, there’s no reason to lift rates.

Weak wages growth, continuing below target inflation, higher household debt, indifferent consumer spending and risks support the case for rates to remain on hold.

Company profits in Australia have risen in the final quarter of 2017 and while almost all sectors also experienced wage growth it was a bit weaker than forecast.

Gross operating profits were up 2.2% on a seasonally adjusted basis in the three months to December 31, the Australian Bureau of Statistics said in its quarterly business indicators report.

That compared to market expectations of a 1.5% increase.

Wages rose one per cent in the December quarter and 4.3% for the year.

Most economists have forecast a quarterly GDP improvement of 0.5%- but not the AMP’s Dr Shane Oliver

RBA Governor, Phillip Lowe speaks in Sydney tomorrow and while the topic is on business investment, his comments fleshing out his post meeting statement later today will be closely watched.

On top of this, the cooling in the Sydney and Melbourne property markets means the need for a possible tightening of monetary policy is off the agenda.

Tomorrow’s December quarter’s National Accounts and GDP report will be interesting, but won’t really cause a reworking of forecasts except by the excitable.

The AMP’s Chief Economist, Dr Shane Oliver wrote at the weekend “ We don’t expect a rate hike until late this year at the earliest.

"RBA Governor Lowe in a speech on Wednesday is likely to reinforce the impression that the RBA is comfortably on hold for now

Tomorrow’s December quarter GDP data will be impacted by the weak trade account in the December quarter.

Dr Oliver says the National Accounts are " likely to show growth of 0.2% quarter on quarter or 2.2% year on year as net exports detract 0.7 percentage points from growth but this is offset by a bounce back in consumer spending and growth in business investment.

His estimates are weaker than most other economists - consensus forecasts seem to be around 0.6% quarter on quarter and 2.4% for the year.

A reading of 0.6% would be unchanged from what was first reported for the September quarter.

The NAB’s economics team is looking for a quarter on quarter rise of 0.7% and an annual rate of 2.5%.

"The data will paint a picture of an economy where infrastructure spending is supporting growth and momentum in non-business investment continues to take hold. Household consumption is likely to have bounced back in Q4, although this follows a particularly weak Q3,” The NAB economics team wrote.

"While employment remains strong (and may have supported labour income), the risk remains that consumer spending slows again without a stronger pickup in wages and household income growth. A small pickup in dwelling investment is anticipated following falls in the previous three quarters, although it is now clear that the dwelling construction cycle has turned.

“Meanwhile, net exports look to have subtracted a whopping 0.8% from growth, with exports weighed down by declines in rural exports and disappointing outcomes for exports of iron ore and metals, while imports were strong (particularly consumption and intermediate goods) which gels with strength in consumer spending.”

The NAB last week dropped its forecast for two rate rises this year - they now expect one and add that it wouldn’t surprise if the RBA remained on hold until early 2019.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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