Sep RBA — playing with a dead bat?

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The September RBA meeting is unlikely to be a big event. While i am sure that Gov Stevens still believes that ‘the best way to be independent is to be independent’ i also do not think him foolish enough to make the RBA the issue only a few days from a federal election.

The market’s focus will be on the final paragraph, where something like (from the August statement):

The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.

Seems the most likely outcome.

With regard to the detail, there is scope for the bank to sound more upbeat on global growth and commodity prices – reflecting the turn-up in global PMIs and australian commodity export prices (see here).

The inter meeting period delivered more EM jitters, reflecting fears of capital outflow, so the RBA may emphasise these risks a little more – though with matters seeming calmer now i doubt it. my guess is that the financial conditions paragraph is mostly left unchanged.

Domestically things are looking mixed, with the housing side of the ledger continuing to respond to low rates, but the capex report suggesting the the hoped for lift in non-mining investment remains over the horizon. Labour market data remains weak, and inflation risks seem low.

Finally,i expect no changes to the FX section — even with commodity prices a little higher the RBA is sure to judge that the AUD remains too high.

The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.

I still think the RBA’s next move is a rate cut, but it seems like 2014’s business just now.


  1. You obviously do not know Glenn. As we saw in 2007 if he believes rates have to go up or down then he will do it irrespective of an election.

    1. Yes, it’s an interesting situation isn’t it… I think given how tentative the RBA has been in this easing cycle, it would look odd if they went for consecutive rate cuts with the election 4 days away. But if, say, a new chief had been installed 2 months ago and decided that the bank had been too tight for some time, it would be more understandable if they went for a cut today.

      1. I guess, given how hard it is to forecast commodity prices, that they must be reactive – but you only have to speak the the management of bhp and rio to know that the investment phase is in wind-down for the next 10years – and as you’ve said rajat, it would have been better to start that phase with full employment and 3% inflation.

        Ohh well …

  2. Okay then I have booked in for my ESL lessons!!

    Do you think the reason why they have been tentative is because they expected monetary policy to have had a larger impact by now?

    1. Because they do not believe they can forecast very well (and they explicitly said so many times in public speeches) so they are always tentative and reactive. It’s understandable really. Who knows for sure what’s next in US, Europe and China?

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