The RBA's decision that surprised no one: ANZ's Felicity Emmett

The RBA's decision that surprised no one: ANZ's Felicity Emmett
The RBA's decision that surprised no one: ANZ's Felicity Emmett

GUEST OBSERVER

In a move that surprised no one, the RBA left the cash rate unchanged at 2% at its board meeting.

Moreover the post-meeting statement was a virtual carbon copy of last month’s. Clearly the Bank is waiting and watching the data. The labour market numbers are important, as are the inflation numbers due out in late January. But in the meantime, the data the Bank will be most interested in will be tomorrow’s Q3 household spending numbers. Internationally, any market volatility around the US Fed’s meeting on 16-17 December (AEDT) will be of interest, even though a rate hike is priced by the market. 

The changes to the statement were minimal: 

• The improvement in growth in business credit was noted. 

• The language around housing finance was changed slightly – the statement continued to highlight the easing in lending to investors, but omitted the comment about owner-occupier finance picking up. 

• The last paragraph reiterated last month’s comment that “members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand”. 

 

In our view, soft inflation probably does give the RBA the scope to cut rates to give the economy a bit of stimulus. The question will be if, by February when the Bank next meets, it judges that demand does need a bit more of a kick-along. 

Until then, each data release will take on added significance. The labour market data are clearly important, in particularly whether the unemployment rate’s dip below 6% is sustained. The inflation number in late January will also be key. Tomorrow’s Q3 GDP, while somewhat dated, will be important in giving a guide to where things are at currently. 

What will be particularly important in tomorrow’s release will be the household spending numbers. The RBA is forecasting consumption to lift to above average from 2016. Above average is about 3½% y/y. It’s currently running at 2½%, so it will need to accelerate pretty quickly to keep the RBA comfortable with that forecast. With household incomes under pressure, due mainly to soft wages growth, we are doubtful that households will have the capacity to lift their spending to this degree. So tomorrow’s numbers are important to gauge how achievable the Bank’s forecasts are. It will be one of the key numbers the RBA will be watching.

Felicity Emmett co-head of Australian economics, ANZ Research and can be contacted here.

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