Upbeat Reserve Bank sees stronger growth: CommSec's Craig James

EXPERT OBSERVER

The Reserve Bank has left the cash rate at a record low of 1.50 per cent for the 31st straight month (28th meeting).

The last rate change was a quarter percent rate cut on 2 August 2016.

What has changed since the last meeting? 

The Australian jobless rate remained at a 7½-year low at 5 per cent in January. 

The NSW jobless rate fell to a record low of 3.9 per cent in January. 

The CoreLogic national home price index fell by 6.3 per cent over the year to February 2019. 

Building approvals rose by 2.5 per cent in January.  Annual credit growth stands at 4.3 per cent – the slowest rate recorded in 5 years.

Australian business conditions rose from a 4-year low of 2.6 points to 6.6 points in January.

The Australian sharemarket has lifted, with investors digesting results for the earnings season.

Business investment rose 2.0 per cent in the December quarter.

Construction prices are rising at the fastest rate in 9 years.

Company profits hit record highs in 2018.

Wages rose 2.3 per cent over the year to December. Including bonuses: 2.8 per cent – highest in four years. 

The Australian dollar has fallen from US72.50 cents to around US71 cents. 

Investors are encouraged by reported progress on a US-China trade agreement The assessment 

The Reserve Bank remains sidelined.

Continued job market strength is critical to the economic and interest rate outlook.

While the Board acknowledged that “the slower pace of [economic] growth has continued into 2019”, it still expects “growth of around 3 per cent this year”.

The Bank continues to note that the labour market is “strong”.

One key uncertainty is consumer spending, but even on this point the Reserve Bank expects spending to be supported by “a pick-up in growth in household income.”

Perspectives on interest rates

The Reserve Bank has left the cash rate at 1.50 per cent. The previous move was a rate cut in August 2016 (25 basis points).

There have been 12 rate cuts since November 2011, with the Reserve Bank cutting rates from 4.75 per cent to 1.50 per cent. 

The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 from 3.00 per cent to 4.75 per cent.

What are the implications of today’s decision?

 It’s important to stress the Reserve Bank is forwardlooking.

If the Bank believes that current settings will produce stronger growth, then there is no need to alter policy.

Watch the job market and consumer spending as they are keys to any change in rates in months ahead.

CRAIG JAMES is CommSec's Chief Economist