Australia | Oct 05 2010
By Greg Peel
The Reserve Bank of Australia had several data releases to consider this morning ahead of its monetary policy meeting decision.
The August trade balance rose to a surplus of $2.35bn from $1.70bn in July, slightly higher than expectations of $2.30bn. Yet it was not about rising commodity exports this time – exports fell 2% and coal and iron ore exports somewhat cancelled each other out with a 10% gain and 10% fall respectively. It was the 5% fall in imports which made the difference.
This may be surprising given the strength of the Aussie dollar, but then the figure included a 42% drop in aircraft imports – a very lumpy and sporadic sub-class. So this month's net result was not quite so alarming, as far as the RBA is concerned, in terms of the commodity boom and its inflationary pressure.
Retail sales rose 0.3% in August, which is the sixth consecutive rise. However, growth slowed from July's heady result of 0.7%. It looks like we're beginning to venture out again though, with growth in cafe and restaurant sales the highest individual sector at 1.5%.
The ANZ job ads series posted its fifth straight rise with a 0.7% increase in September. This was nevertheless also lower than the previous month in which a 2.4% gain was recorded.
The only real negative was the service sector PMI which fell from 47.5 in August to 45.6 in September. A number under 50 represents contraction, and this figure has registered under 50 eight months of this year. Heaviest in September were the drops in the communication and finance & insurance sub-sectors.
[The NAB business sentiment survey was slated in economic calendars to be released today, but has gone missing.]
So add that all up and, this morning at least, there was not a screaming argument for a rate rise. But the RBA's decision was not going to simply be based on recent economic data. Nevertheless, the RBA did elect to stay put at 4.50%.
But the RBA is also very good at dropping hints, and in RBA terms there was an absolute clanger in Glenn Steven's accompanying statement. Last month Stevens signed off with:
“The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. With growth in the near term likely to be close to trend, inflation close to target and with the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate for the time being.”
This month Stevens suggests:
“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being. If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”
One might argue that the expression “at some point” is still quite vague, but Stevens is usually more subtle than straight-out suggesting “higher interest rates will be required”. Unless the September quarter CPI reading comes in at a very weak level, November will see a hike. This is consistent with economist views.
In the body of Stevens' statement, he addresses both credit markets and property markets. “Asset values are not moving notably in either direction,” he notes, which can refer to both property and stock markets, and “overall credit growth is quite subdued at this stage”. We are still in a period, he suggests, in which earlier government investment through fiscal stimulus is giving way to a return in private sector investment at least in terms of investment “prospects”. He adds, “This is to be expected given the large rise in Australia's terms of trade, which is now boosting national income very substantially”. [My emphasis]
Last month he noted only that the terms of trade “have regained their peak of two years ago”.
So it's a reprieve for now, but not for long. One would have to assume the banks would have greeted this “unchanged” announcement with dread. It is expected that the banks have been waiting for an RBA rate rise to move their own mortgage rates up, most likely by more than 25 basis points. Now if they go, they'll have to go independently, and that's a lot harder to justify to customers.
We shall see.
Read the full statement here.