The Reserve Bank left rates on hold yesterday at 7.25% for its cash rate, so now we face a month of the usual breathless will they won’t they move them in May after the March quarter Consumer Price Index is released on April 23.
There was a definable softening in tone in the statement accompanying the decision from RBA Governor, Glenn Stevens.
Basically, the bank wants time to see if the four rate rises (two last year and one each in February and March) work to slow demand and activity.
Friday sees the first test with the retail trade figures for February released. The market is expecting a rise of 0.2% compared to no change in January. Mr Stevens also appears before the House of Representatives Economics Committee on Friday morning in his first outing for the year.
Both events will generate more speculation about the bank’s next move, and all of it will be fruitless.
Unless there’s a rise of 4.5% or more in the March quarter Consumer Price Index, the bank won’t move. It already knows that inflation will be around 4% or a bit more. Mr Stevens has said so on at least two occasions and it was again highlighted in yesterday’s statement.
Investment bank economists at Goldman Sachs JBWere say there won’t be a rate rise, while their opposites at Merrill Lynch reckon there will be a rise.
Macquarie Bank interest rate strategist, Rory Robertson said before the decision yesterday that "with mortgage rates near 9%, growing signs of softer household demand, our major banks threatening "credit rationing" and the Fed recently doing extraordinary things to keep the US economy and financial system afloat, another RBA hike in May is highly unlikely.
"Indeed, as highlighted here in recent weeks, the RBA’s next move in rates could easily be down, though probably not soon," he said.
The Reserve Bank of Australia (RBA) has left official interest rates on hold following Tuesday’s monthly board meeting.
In his statement accompanying the bank’s decision Mr Stevens said there was "tentative evidence that growth in domestic demand is moderating".
"Business and consumer sentiment have softened in the early part of 2008, and credit demand has slowed somewhat," Mr Stevens said.
"Developments abroad continue to suggest that the world economy is slowing and, in line with the bank’s previous forecasts, it appears likely that global growth will be below trend in 2008.
"In the short term, inflation is likely to remain relatively high. However, inflation should decline over time, provided demand slows as expected.”
And if it doesn’t, rates will go up towards the end of the year.
And in contrast to the two previous statements, the overall tone was more moderate and economists expect him to maintain that line on Friday.
No doubt helping was the discernible fall in credit growth and lending to business, consumers and for housing, as revealed by the RBA Monday afternoon.
