Bill Evans on the RBA

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SMARTI INVESTOR 6TH August 2013 photo by louise kennerley Bill Evans Wespac

Fresh from our Bill:

As expected, the Board of the Reserve Bank decided to leave the cash rate unchanged at 2.50%.

The Governor’s statement is almost identical to the statement which he released following the June Board meeting.

The major change in markets since the June Board meeting has been the further lift in the Australian dollar from around USD0.925 at the time of the June meeting to USD0.945 today. As a result markets were interested as to whether the Bank might have strengthened its language around the exchange rate. In the event it did change the wording from “The exchange rate is assisting in achieving balanced growth in the economy but less so than previously as a result of the higher levels over the past few months” (June) to “The exchange rate … is offering less assistance than it might in achieving balanced growth in the economy”. Arguably this is a somewhat stronger statement but not really significant. To have restored the “uncomfortably high” language around the currency that was used in the last four months of 2013, the Bank would have to have backed it up with an easing bias.

At this stage the general description around the economy is seen by the Bank not to justify such a choice.

Despite recent soft retail sales numbers and a sharp fall in consumer sentiment there is no change from “Moderate growth” in describing consumer demand. On the real economy the only change of note is to explicitly add the following sentence: “Overall, the Bank still expects growth to be a little below trend over the year ahead”.

In previous statements the Governor has not been that explicit about the one year growth outlook although that view is contained in the minutes of the Board meetings.

Other developments which were mentioned in the June meeting (including “moderation in the pace of dwelling prices”; “noticeable decline in wages”; the expectation that “it will probably be some time yet before unemployment declines consistently”) all figure in this statement.

There is one more positive aspect to this statement around the outlook for non-mining business investment. The bank has often noted that a recovery in investment in the non-mining sector will be important to rebalancing the economy. While business credit growth has been showing some encouraging signs the Governor’s statement has chosen only to mention it in this July statement indicating that the Bank has been prepared to acknowledge the lift in business credit growth.

Conclusion

Westpac has been of the view that there will be no change in rates until increases occur in the second half of 2015. Today’s statement gives us no reason to alter that view.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.