Australia | Dec 01 2009
By Greg Peel
The smart money knew all along. The language in November’s statement accompanying the rise to 3.5% was little different to October’s which gave us 3.25%. The RBA said it would lessen monetary policy “gradually”. It didn’t say “in fits and starts”. Some misconstrued “gradually” to mean a pause in December when really the RBA was saying “we’ve already decided on a December rate rise as well”. And not even Dubai could make a difference.
And this month the RBA is trying to put me out of a job – at least the job of comparing this month’s statement to last month’s – by simply noting:
“The Board’s assessment of the outlook remains much as in the November Statement on Monetary Policy. Growth in 2010 is likely to be close to trend and inflation close to target.”
And it is true. A quick read through the December statement reveals very little difference at all, except that it was a bit shorter. One little difference was, however, subtle but clear. In November, the RBA suggested:
“Economic conditions in Australia have been stronger than expected”.
This month, at that the same point in the statement, it read:
“In Australia, the downturn was relatively mild”.
Get it? The RBA, in wrapping up ahead of a well-earned Christmas break, has left on a note of declaring the recession we never had over. The downturn was relatively mild – past tense. In November the present tense was still being used.
This would tend to imply that we will probably see another 25 points in February, and again in March, and thereafter until we return to normal. But I’m not going to blow my perfect record in 2009 and speculate that far out. Australia may have now kissed recession goodbye, but Dubai has reminded us the rest of the world is not yet out of the woods. If pressed, I’m saying another 25 in February on the strength of this statement. But this time there’s two months in between and I’m going to have a break as well. There will be plenty of data in the meantime, including third quarter GDP in a couple of weeks.
Economic data released yesterday was mixed, but left most commentators feeling a rate rise was inevitable. A strong rise in Australian business inventories and another jump in new house prices was offset by a flat month for business credit growth following several months of falls. But in the case of the latter, a flat month shows a trend on the turn and the RBA has made note many times in its recent statements (and again in December) that companies are having no trouble raising fresh capital from either equity or debt issues, thus dismissing the need to borrow from more wary banks.
Business credit was also offset by increases in housing and consumer credit while an unexpected drop in Japanese industrial production in October paled in comparison to a far higher than expected Indian third quarter GDP.
This morning in Australia nevertheless, the data were to the weak side. The AiG performance of manufacturing index had only recently turned positive (greater than 50) but last month the rate of expansion slipped from 51.7% to 51.2%. Building approvals in October fell for the first time in five months – by 0.6%, down from a 5.1% gain in September. But the latter number very much represents a reduction in the government’s first homeowner grant.
These are not the numbers of an economy in turmoil.
The data between now and February will be important, because without data the RBA has no idea what’s going on. But it appears the RBA has already decided on its plan – being to gradually return monetary policy to a neutral footing – and as such data from here on in will have to be surprisingly bad to deter the central bank from that plan. The above data were certainly not sufficiently “bad” enough, if they were indeed bad at all.
I’m looking forward to see if the first words out of People Skills’ [sorry Annabel] mouth as Opposition Leader will be an attack on the government for being responsible for higher mortgage rates.