RBA Closes Out 2019 In “Wait And Assess” Mode

By Glenn Dyer | More Articles by Glenn Dyer

No rate cut from the Reserve Bank at its final monetary policy board meeting of the year and none is in prospect, despite the usual speculation from Paul Keating’s famed pet shop galahs among our economic commentators, business analysts, and media writers.

The central bank left the official cash rate at 0.75%, a decision that didn’t surprise financial markets at all as no economists surveyed had forecast a cut.

Quite a few though reckon there will be another cut in the first quarter of 2020.

Governor Philip Lowe made it clear in his post-meeting statement that the RBA expects to keep rates at a low level for an extended period of time.

“The board agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low-interest rates will be required in Australia to reach full employment and achieve the inflation target,” he said.

“The board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

That’s been the RBA’s mantra now for the past couple of months and it was more firmly stated by him in a speech last week where he ruled out quantitative easing as a monetary policy move to kickstart the economy.

Dr. Lowe again said the economy had reached a “gentle turning point”, maintaining the bank’s belief that growth would pick up to about 3% by 2021.

But he again also conceded that biggest risk remained muted spending by households – but the RBA now seems to be putting some of its hopes in the sharp rise in house prices and the so-called wealth effect to boost consumer confidence and spending.

“The main domestic uncertainty continues to be the outlook for consumption, with the sustained period of only modest increases in household disposable income continuing to weigh on consumer spending,” he said. “Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle.”

“[Rate cuts have] boosted asset prices, which in time should lead to increased spending, including on residential construction,” he said. “lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”

In a note yesterday afternoon, AMP Chief Economist, Dr. Shane Oliver said:

“In our view there was very strong case to cut rates again this month: the recent run of data relating to retail sales, car sales, housing construction, business investment, credit, and wages growth has all been soft; September quarter data released so far indicates an ongoing recession in private final demand in the economy with only net exports, stockpiling and public spending keeping growth going; the RBA’s own forecasts show barely any progress towards reaching its goals of full employment and inflation over the next two years; and the next Board meeting is not till February which is two months away.

“However, Governor Lowe’s recent comments suggested a preference to “wait and assess” given the “long and variable lags” of monetary policy and this remained the case this month.

“The RBA’s post-meeting Statement was a little bit more upbeat regarding the global outlook in describing some of the risks around trade as having lessened recently (albeit today’s developments with President Trump putting new tariffs on Argentina and Brazil and the US threatening tariffs on France call this into question),” Dr. Oliver wrote.

“We see the cash rate being cut by 0.25% in each of February and March taking it to a final low of 0.25%. Beyond which QE is likely, but the RBA will likely delay it until it sees if it gets any substantial further fiscal easing in the May Budget,“ Dr. Oliver forecast.

Glenn Dyer

About 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.

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