RBA: Steady as she goes - ANZ

Today’s RBA statement had a very little substantive change and the Bank’s outlook is a little more downbeat, according to David Plank, Head of Australian Economics at ANZ.

Key quotes

“For instance, global headline inflation rates “have declined recently” and, domestically, “consumption growth remains subdued” on account of “slow growth in real wages and high levels of household debt.” Interestingly, the Bank no longer refers to growth accelerating to more than 3% over the next couple of years. As a partial offset, the Bank has removed the reference to the prices of iron ore and coal declining over recent months.”   

“The AUD reacted to the statement by losing about half a cent in the 30 minutes following, while the front end of the AUD curve has rallied a couple of basis points over the same time frame.”

“Statement Details

• The Bank remains upbeat on the global outlook, though it notes that “wage growth remains subdued in most countries, as does core inflation.” 
• The Bank is perhaps a little less dismissive of the weakness of Q1 GDP, with the weakness now seen as only “partly reflecting temporary factors” whereas in last month’s statement the Bank argued the expected weakness likely reflected “the quarter to quarter variation in the growth figures.” 
• Domestic business conditions and non-mining investment outside the regions impacted by the mining downturn continue to be seen in a positive light. Despite this, the reference to growth accelerating to a little above 3 percent over the next couple of years has been removed and the Bank now just says that “the Australian economy is expected to strengthen gradually.”
• The assessment of the labour market is largely unchanged, though the reference to hours work being weak has removed. The commentary on the housing market is also little changed. There has been no change to the commentary around the outlook being supported by low interest rates and the depreciation of the exchange rate, with “an appreciating exchange rate” continuing to be seen as a complication to the adjustment of the economy should it occur. 
• We see the RBA on hold for the foreseeable future. The RBA’s July statement suggests the Bank is a little less certain of the outlook than it was earlier this year, despite the recent strength of the labour market and the continued strength of business conditions. In saying this, we may be at risk of over interpreting the small changes in the statement. Still, we think the removal of reference to 3% plus growth is potentially a material change. We will find out in August when the RBA updates its forecasts.”