If you can count the number of angels dancing on RBA governor Glenn Stevens’ head, then you may be able to predict just when the Reserve Bank Governor will make the first rise in official interest rates happen.
But if you are a lesser person, as most of us are, reading his post board meeting statement today will have to suffice.
And, judging from the statement, we are none the wiser on the timing, except that rates will rise, sometime in the future.
It could be October, it could be November, it may be February. It all depends on what happens in the economy which seems to be sluggishly chugging along.
The Bank made a couple of small but important changes in wording in this statement, compared to the statement in July which made the resumption of rate rises easier to comprehend.
“The Board’s judgement is that the present accommodative setting of monetary policy remains appropriate for the time being. The Board will continue to adjust monetary policy so as to foster sustainable growth in economic activity and inflation consistent with the target,” the RBA Governor said in the key last paragraph of the statement this afternoon.
A month ago Mr Stevens said this:
The Board’s judgment is that the present accommodative setting of monetary policy is appropriate given the economy’s circumstances. The Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for sustainable growth in economic activity and achieving the inflation target.
The change is in the appearance of the phrase “for the time being” and the insertion of the word “adjust” which give the RBA the flexibility now to move to a more active rate policy.
No more monitoring, now it’s “adjust”.
You can be sure a rate rise will happen.
So tomorrow’s growth figures will very likely to be not as good as thought a week ago. Growth for the year to June won’t be far away from the RBA’s forecast of a 0.25% rise in GDP.
This morning we got another of those surveys that could tempt us into believing the economy was rebounding solidly with the news that manufacturing had a good August with the performance of manufacturing index (PMI) rising 7.2 points from July to 51.7 in August, to the highest level since March of last year, according to survey from the Australian Industry Group and PricewaterhouseCoopers.
(A reading above 50 signals manufacturing is expanding).
But after the poor trade and inventory figures, growth in the June quarter is now open to question. Building approvals for July were higher, especially the very volatile non private dwelling series which reflects local and state government approval backlogs and decisions.
But that’s not to deny that the economy is doing better as the RBA explained in the statement this afternoon:
Economic conditions in Australia have been stronger than expected, with consumer spending, exports and business investment notable for their resilience.
Measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives; in those areas demand may soften in the near term. Some types of capital spending are also likely to be held back for a while by financing constraints.
But overall, it now appears that investment may not be as weak over the year ahead as earlier expected. Higher dwelling activity and public demand will also start to provide more support to spending soon and, hence, growth is likely to firm going into 2010.
Unemployment has not, to this point, risen as far as had been expected. Weaker demand for labour, evident in a decline in hours worked, nonetheless has seen a moderation in labour costs.
Helped by this and the earlier fall in energy and commodity prices, inflation has been declining, though measures of underlying inflation remained higher than the target on the latest reading. Underlying inflation should continue to moderate in the near term, but the likelihood of inflation being persistently below the target now looks low.
Credit growth overall remains quite modest. Housing credit has been solid and dwelling prices have risen over recent months.
Business borrowing, on the other hand, has been declining, as companies have sought to reduce leverage in an environment of tighter lending standards.
Large firms have had good access to equity capital and access to debt markets appears to be improving, helped by the better-than-expected economic conditions and increased willingness on the part of investors to accept risk.
And then China’s PMI was released and it showed a solid rise to a reading of 54, the highest since April, 2008.
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