Business economists have pretty well got the message that the Reserve Bank won’t be moving interest rates any time soon.
The Bank’s board meets tomorrow July 1 and Governor Glenn Stevens will release a post-meeting statement that will read pretty much like the last few with the last paragraph telling us the central bank remains happy to sit and wait to see what happens in the economy over the next few months.
The usual early month flow of data, such as retail sales, trade, car sales, house prices and building approvals (most for May, some for June) will be out this week and will help update the outlook for the economy.
The private lending data for May will be issued today by the RBA.
But the monetary policy board meeting tomorrow remains the major release of the week for Australia.
This is the how the post meeting statement for June concluded (much like the May and April statements ended).
"In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.
"On present indications, the most prudent course is likely to be a period of stability in interest rates," Mr Stevens said.
In other words, no change for quite a while.
That’s likely to be reinforced by comments from a trio of senior RBA officials in public appearances this week. These will include Governor Stevens.
On Wedneday, Assistant Governor Guy Debelle is involved in a conference in London, while on Thursday, Mr Stevens’s speaks in Hobart, and on Friday the RBA’s head of Financial Stability Luci Ellis speaks in Melbourne.
So by the end of this week it should be very clear that monetary policy is not going to change for the foreseeable future, despite what other data releases this week may suggest (in the minds of some of the panicky private economists).
That means monetary policy will remain on hold in Australia for some time, even if inflation picks up, as it seems to be doing in the US and parts of Europe.
That message has finally hit home among private economists, such as JP Morgan’s chief economist Stephen Walters was had been predicting an August rate cut by the RBA.
He now says the next rate move will be up, and not until the second half of 2015.
"We have changed the rate call, but have not made material changes to our macro forecasts, which continue to foresee below-potential output growth, rising unemployment, and benign inflation," he was quoted as telling AAP on Friday.
"We do not see recent healthy house price gains and evidence of speculative investment in housing as reasons for the RBA to embark on an early hiking cycle."
That thinking is now common among market watchers – so much so that all 16 market economists surveyed by AAP late last week said the RBA won’t move the cash rate at its board meeting tomorrow.
AAP said two economists say there will be a rate rise before Christmas and seven are predicting a hike in the first half of 2015, which would be the first interest rate rise in over four years – if it happens.
The AMP’s chief economist Dr Shane Oliver wrote in his usual weekend note that the central bank won’t be touching rates for a while.
"With a significant degree of monetary stimulus already in place and March quarter GDP growth coming in stronger than expected there is little case to cut interest rates," Dr Oliver wrote.
"But with consumer confidence remaining depressed as a result of the May Budget, anecdotal evidence pointing to a flow on to retail sales, inflation remaining benign and the Australian dollar being uncomfortably high there is no case to raise rates either.
"In fact, interest rates now look like being on hold into next year," he added.
