RBA retains tone of cautious optimism for Australian Economy: CommSec's Craig James

RBA retains tone of cautious optimism for Australian Economy: CommSec's Craig James
Craig JamesDecember 7, 2020


The Reserve Bank has left the cash rate at a record low of 0.75 per cent.

What has changed since the last meeting?

- The Consumer Price Index rose by 0.5 per cent in the September quarter; annual rate 1.7 per cent.
- The Australian jobless rate fell from 5.3 per cent to 5.2 per cent in September.
- The CoreLogic national home price index rose by 1.2 per cent in October.
- Retail trade rose 0.2 per cent in September.
- Real retail trade fell by 0.1 per cent in the September quarter.
- The US Federal Reserve cut the federal funds from 2 per cent to 1.75 per cent.
- Job ads fell by 1.0 per cent in October.
- Tax refunds totalled $20 billion in the three months to September.
- The Australian dollar has generally held around US67o 69 cents.
- The US and China are reportedly progressing on a ‘Phase 1’ trade deal.
- UK to face a December election; Brexit date now January 31.
- US sharemarkets hit record highs.

The Assessment

The Reserve Bank has refreshed its views, commentary and forecasts. Overall, the tone of cautious optimism is maintained as is the easing bias. But the Reserve Bank doesn’t seem to be setting the stage to act on the easing bias by cutting rates again in December. The next opportunity to cut rates is February 2020 after the Reserve Bank assesses economic growth, inflation, unemployment and inflation data.

The Reserve Bank has given its customary ‘sneak peek’ at its latest forecasts. The jobless rate is tipped to remain near 5.25 per cent for some time. Similarly inflation is not expected to budge from near 2 per cent, actually through to 2021. Economic growth is tipped to lift to around 2.25 per cent this financial year and then to 3 per cent in 2021.

Inflation is edging slowly towards the Reserve Bank’s 2o 3 per cent target zone. The Reserve Bank Board believes this progress will continue. The Federal Treasurer has expressed his support for maintaining the target band and made no change to the Statement on the conduct of Monetary Policy.

Perspectives on interest rates

The Reserve Bank has left the cash rate at 0.75 per cent after cutting rates in June, July and October, each by 25 basis points. There have now been 15 rate cuts since November 2011 with the cash rate cut from 4.75 per cent.

Previously rates rose 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?

The Reserve Bank Governor continues to express optimism, saying that the economy has reached a ‘gentle turning point’. Home prices have certainly lifted since the election, especially in Sydney and Melbourne. Encouragingly employment continues to grow, lifting purchasing power in the economy.

The labour market and consumer spending will remain in the spotlight. Overseas, the US-China trade talks and Brexit will dominate attention. The Reserve Bank is expected to leave the cash rate unchanged until at least early 2020.

CRAIG JAMES is the Chief Economist at CommSec

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

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