Australia | Aug 05 2008
By Greg Peel
“Weighing up the available domestic and international information, the Board judged that the cash rate should remain unchanged this month. Nonetheless, with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.”
And there you have it. That second sentence has replaced the sentence appearing since April, which read “The Board will continue to evaluate prospects…”. Aside from this particular sentence, one has to read closely to notice any other variations from last month’s statement, which in turn was only subtly different from May’s.
Limited spare capacity and earlier strong growth in demand in Australia were again evident in the latest CPI data, the RBA notes, but while signs of an easing in labour market conditions were “tentative” last month there are now considered to be “early” signs of easing.
Credit concerns in the US “resurfaced” last month, but they are now “persisting”. High prices of oil and other commodities were last month “adding to global inflationary risks” but this month the RBA notes “they are also dampening growth in a number of countries”.
Whereas last month the RBA decided “demand growth will be moderate this year” it has now gone one better and suggested “demand will remain subdued, and economic growth will be fairly slow over the period ahead“.
While the bank made no mention last month of its specific inflation forecast, this month it has reminded us that its “forecast remains that inflation will fall below 3 per cent during 2010”.
Which means that the RBA does not see inflation returning to inside the supposed “comfort zone” for another two years. However, one might suggest that something like 3.5% inflation in the near term will seem a lot more comfortable than the current 4.5%.
One suspects the economists at ANZ have just had an official ceremony out in the parking lot, torching their interest rate predictions for good. For ANZ had become somewhat lonely in its view that perhaps another interest rate hike might be needed. Plenty of other economists have swung over to the dovish side as the evidence has mounted that Australia’s economy is not just slowing, but hitting a wall. There will be plenty deciding today that September could be the month for the first cut since December 2001, led by the ever vocal TD Securities. (We also note that Craig James at CommSec hasn’t given up his prediction of one more potential rate hike as yet).
Or maybe, despite today’s obvious change of heart from the RBA, we might still have to wait for confirmation from the September quarter CPI. But we can rest assured there will be plenty of speculation ahead, and plenty of data to chew over.
Look out for an Aussie dollar with an 8 in front of it shortly.