A preview of the Reserve Bank of Australia monetary policy announcement due Tuesday 4 April 2017
- In brief, the cash rate is expected to be left on hold at 1.5%
While the most recent economic growth data (Q4 GDP) showed a strong bounce, recent economic indicators have been mixed, most recently yesterday's retail sales data was a bad miss on estimates and showed a fall from the prior result. But 'mixed' is the word, other data yesterday, for example:
- Australia - Retail Sales for February: -0.1 % m/m (expected +0.3% m/m)
- Australia - Building Approvals (February): +8.3% m/m (expected -1.5%)
- Australia - ANZ's job ads (March): +0.3% m/m (prior -0.7%)
- Australian private survey inflation indicator edges higher for March
- Australia - CoreLogic March House Price Index, values up most since May 2010
- Australia Manufacturing PMI (March): 57.5 (prior 59.3)
In the bigger picture the economy is benefitting from higher commodity prices, the impact of the property price gains in China on their economy, and government spending. Are these sustainable? You be the judge ....
A key concern for the Reserve Bank of Australia (as shown by recent remarks from Governor Lowe) is the impact high debt (particularly related to housing debt) on consumer spending (lower spending due to debt servicing costs) and the negative impact this has on the economy. On Friday (31 March) the Australian prudential authority announced it had tightened some rules on lending, which may go some way towards slowing loan growth (and house price growth). If these changes have the desired effect (plenty of analysts say the changes are too little to have much impact) then it leaves scope for the RBA to cut rates if they so choose (no certainty on this, the data is mixed on the economy like I have said, arguments can be made for an extended period on hold at the Bank). Something to watch for future meetings.
Compounding the impact of high debt servicing costs is the very slow growth in employment and wages. Both are growing, but slower than policy makers want. This is a constraint on consumer spending also.
So, like I said right at the beginning of the post:
- The cash rate is expected to be left on hold at 1.5%. No analysts surveyed expect a change today.
- For the accompanying statement there may be a nudge towards a slightly more dovish tone. The 'but' on this is that the economic data is mixed, there are soft areas (retail sales, employment growth, wage growth), but there is strength also ... did I mention the data is 'mixed'?
