RBA likely to remain on hold for a long while: Shane Oliver
EXPERT OBSERVER
The September RBA Board meeting provided no surprises – with the RBA on hold for the 23rdmeeting in a row.
The RBA’s Statement accompanying the decision saw no major changes. The RBA still sees growth picking up to a bit above 3% and is upbeat on business conditions, non-mining investment and public infrastructure investment but is uncertain about consumer spending and the drought and global trade given US tariffs.
While the RBA appears to be a bit more upbeat on wages growth having “picked up a little recently”, its hard to get too excited about this given the pick up since 2016 largely reflects a faster increase in the minimum wage rather than underlying supply and demand conditions and in any case wages growth was just 2.1% over the year to the June quarter. Its also worth noting that the pick up in reported wages growth since the time of the last RBA Board meeting only occurred because March quarter wages growth was revised down from 2.1% to 2%.
Surprisingly the RBA is still relaxed about higher mortgage rates, on the back of higher money market rates, and falling home prices. However, despite its public comments it would have to be feeling a little bit nervous about the slide in Sydney and Melbourne home prices given the build-up in household debt in recent years and it would be aware that when house prices and auction clearances have been this weak in the past it has actually taken lower interest rates to stabilise the housing market.
Overall, there is still nothing in the RBA’s latest Statement to suggest an imminent change in monetary policy.
The RBA’s forecasts for solid growth and a gradual rise in underlying inflation argue against a rate cut but the peak in the housing construction cycle, uncertainty about the outlook for consumer spending, the continuing weakening in the Sydney and Melbourne property markets, the drought, low inflation and wages growth and tight bank lending standards all argue against a rate hike.
So the stand-off continues and the RBA will remain on hold for a while to come. The next move is probably still up but not until second half 2020 at the earliest and there is a rising risk that the next move will actually be down.
SHANE OLIVER is head of investment strategy and economics and chief economist at AMP Capital and is responsible for AMP Capital's diversified investment funds.