RBA on hold…INDEFINITELY

The RBA has just released the statement following the June Board meeting. We think that this is a document that fits with our view of things and places the RBA firmly on hold for a few months at the very least. 

In the Statement we see an evolution from the statement after the May meeting but confess we are struggling to understand where the minutes from that meeting or the May SoMP fit into the equation. The rhetoric in this statement is, to our mind, much softer than we thought they’d go with but more in keeping with our mock-up and commentary yesterday.

We won’t bore you with the full statement, which can be found here, but these are our high levels takes on it.

  • They are paying more attention to the impact of the Japanese earthquake, impacts on production in Japan and abroad. Interpretation – production is softening even if it’s because of supply chain issues
  • They note that commodity prices have softened of late even if they are still high. Interpretation – less pressure on global inflation
  • Europe is more of a worry than it was and has increased volatility. Interpretation – things are getting less stable in global markets
  • They note that outside the resource sector that “investment intentions have been revised lower lately”. Interpretation – They are listening to the new Treasury Secretary about the other 92% of the economy other than mining
  • Household caution remains and Government stimulus is fading. Interpretation – they are finally getting it about Households with the addition of this bit about stimulus.
  • “The resumption of coal production in flooded mines is taking longer than initially expected, but production levels are now increasing again and there will be a mild boost to demand from the broader rebuilding efforts as they get under way.” Interpretation – we are not, REPEAT NOT, going to see a quick snap buck in GDP and the RBA is going to need to revise down its growth forecasts as we wrote yesterday.
  • On this point have a look at this chart from the Port of Gladstone. We noted we doubted that coal would bounce back as fast as some were expecting because we doubted the capacity was available, relative to what it had been running at prior to the floods to make a material impact on growth in the same manner as the dead stop from the floods had. Clearly ther RBA agrees with us but here is the chart to support that idea

  • “Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term.” Interpretation – they dropped that employment was going to continue to grow but at a slower pace. This suggests to us that the weak employment spot we are in is enduring. certainly our data supports it.
  • “The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.” Interpretation – CPI is not an issue  

 The AUD is off half a US cent and will likely pull back further in the next 24 hours, 3 year swap rates are back at 5.20% with a bias toward 5.10% and expectations of hikes over the next year have now reduced back to just 20 basis points or 0.20%.

We think these moves are appropriate because the RBA is on Hold, these minutes for us better reflect the actual outcomes in the Australian economy here and now and as ever suggest that a steady hand remains on the tiller even if we often disagree with them.

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2 Comments on “RBA on hold…INDEFINITELY”

  1. M-Bat Resident Says:

    I agree totally and with the comments the RBA has now made around employment and inflation, I think they have just taken away any justification they have had to increase rate over the next few months. August meeting may be still “live” but I suspect even the RBA are starting to have doubts……….. who knows a january decrease might be next..!!!

    Reply

Trackbacks/Pingbacks

  1. Australian Market Weekly Wrap | Lighthouse Securities - June 11, 2011

    […] Certainly Australian shares have been under pressure from a weakening economic outlook though both here and abroad. And while interest rate traders and equity investors caught onto this quicker than the RBA which inexplicably appears to have only figured it our as recently as this week. […]

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