Australia | Jun 04 2013
By Greg Peel
Perhaps the most surprising element of this month’s RBA monetary policy statement is its brevity. Although the considerable majority of economists were not expecting the central bank to cut its cash rate after cutting in May to 2.75%, the market has been waiting with baited breath to read just what the RBA’s thoughts were on the big drop in the Aussie and talk of a Fed exit from QE.
The reason why the statement was so brief is because there was a suggestion that very little had changed since the May statement, and data releases over the month have done no more than support the view held by the board a month ago. “The outlook published by the bank last month is for a similar performance in the near term,” notes RBA governor Glenn Stevens, “and recent data are consistent with this”.
It almost suggests Mr Stevens was tiring of cutting and pasting the same old story month in, month out, which is usually the case in central bank policy statements.
On the matter of Fed easing talk, the only real reference in this statement reads “Despite the recent rise in sovereign bond yields, funding conditions for sovereigns, well-rated corporations and most financial institutions remains very favourable”.
In the case of the big fall in the Aussie dollar in the past couple of weeks, the statement reads “The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half”.
Otherwise, everything else is much as it was. The global economy is on track to grow a little below trend this year, and the Australian economy has grown a little below trend over the past year. Financial conditions internationally are very accommodative, and in Australia inflation remains subdued. Investors have been shifting away from deposits into risk assets, and this trend is expected to continue.
Last month the board noted that a low inflation outlook provided “scope” to ease policy, and in order to encourage sustainable economic growth it was time to use some of that “scope”. This month the board suggests “easier financial conditions now in place will contribute to a strengthening of growth over time” and hence monetary policy was back to “appropriate for the time being”. This might suggest no further rate cuts in the foreseeable future, but not so:
“The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”
So has anything changed? Not really. Global monetary policy remains accommodative despite a rise in global bond yields, and despite the fall in the Aussie, the currency still appears overvalued. This statement should have economists expecting a rate cut to come in the months ahead, but then that’s already what they were expecting.
As you were.
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