RBA unlikely to consider rate hikes now
July 31, 2009
Economic data due next Tuesday will come too late to influence the outcome of the monthly monetary policy meeting of the Reserve Bank of Australia (RBA).
Not that the figures would have stood much stand much change of jolting the central bank into action, especially after its own figures on Friday showing borrowing by businesses is heading downhill at a rapid clip.
The debt futures market puts the cash rate at 3.00 per cent after the meeting, exactly in line with its current 49-year low.
The figures due on Tuesday - June retail trade and June quarter house price indexes from the Australian Bureau of Statistics (ABS) - will go into the policy-making mix.
At some stage, trends in consumer spending and housing prices will help to push the RBA's board into nudging the cash rate higher.
But not yet.
There is so much stimulus in the pipeline, from earlier interest rate cuts by the RBA and cash injections and planned infrastructure spending from the government, that further interest rate cuts are probably unnecessary and might risk an inflationary surge further down the track.
On the other hand a recovery toward an economic growth rate fast enough to reverse the upward trend in unemployment is a long way off.
Any inflationary impact of that recovery even further beyond that.
The RBA might adjust the cash rate up a bit - perhaps a quarter or half a percentage point - if money market conditions allow the margin between banks' cost of funds and their lending rates to narrow.
Beyond that, though, the economic case for a rate hike is quite a few months away from being proposed to, let alone accepted by, the RBA's board.
The data next week will give some clues about how many months that wait will involve.
Retail spending was given a boost in December from the first wave of cash handouts and has stayed relatively high ever since.
The impact of those handouts was so pronounced that the ABS suspended its estimates of the trend in retail turnover.
The positive impetus was sustained into May.
The June figures on Tuesday, which will include real-terms estimates for the June quarter, will show how durable that impulse to spend has been.
RBA governor Glenn Stevens expressed some concern, in a speech on Wednesday, that the stimulus might flow through into higher prices rather than increased construction activity.
Earlier this week, Australian Property Monitors reported a 3.3 per cent rise in housing prices nationally, with rises in all states except Western Australia.
Something similar can be expected from the ABS housing price data on Tuesday.
It would not signal the start of a housing price bubble, just confirm a modest pick-up in demand after a year of decline - part and parcel of any action to support building activity.
Rising prices at this stage would not be an argument for tighter monetary policy.
In any case, early hints of a re-inflating economy will be balanced by the still-plentiful evidence that headwinds are still strong.
The latest came in the form of the RBA's own credit aggregates on Friday.
The showed credit rising by 0.1 per cent in June, with annual growth of 3.4 per cent the slowest since 1993.
The all-important business category made it five monthly falls in a row, a negligible annual growth rate of 0.5 per cent and the biggest fall over three months since 1992.
It will take a lot of positive data to push negatives like that into the shadows.
