Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
Central banks don’t like moving interest rates, so the way the economy is going right now suits the Reserve Bank of Australia just nicely.
The key to the outlook for interest rates is the RBA’s assessment of the labour market.
And the jobs market is better than it had expected earlier in the year, with the jobless rate expected to stay steady at best and maybe even fall a bit in the months ahead, the RBA said on Tuesday in the minutes of its board’s October 6 monetary policy meeting.
Economic growth had been slow, but there was evidence of the economy’s rebalancing away from the resources sector towards service-producing industries.
“This rebalancing was being increasingly supported by the depreciation of the Australian dollar, which had led to a noticeable increase in net service exports over the past year,” the RBA said in the minutes.
Progress in the rebalancing meant the truce established mid-year in the RBA’s long-running war of words with the Australian dollar has held for another month.
The minutes included no complaint that the Australian dollar needs to fall further to help the economy, a familiar feature of the RBA’s minutes and other communications up to July.
The discussion in the minutes suggested the RBA has given some earnest thought to the odd combination of soft economic growth and relatively strong jobs growth over the past year.
Maybe it’s because slow wages growth has employers more willing to hire, the RBA speculated.
Or maybe it’s the switch to growth in the more services-oriented sectors of the economy, where more staff are required for a given level of production than in manufacturing or mining.
Either way, the RBA is not in the mood to look a gift horse in the mouth.
And it’s reasonably happy with the way the major risk facing the economy – the hot spots in the housing market – is working out.
Growth in lending for housing had been steady, there were signs of an easing in price growth in Sydney, the boom’s epicentre, and it looks as though measures taken by Australian Prudential Regulation Authority were helping to contain the risks, the RBA said.
That clears away at least one barrier to a further rate cut, if the RBA thinks it’s needed.
The usual barrier – domestic inflationary pressures – has been pushed well out of the way, thanks to persistently high unemployment and the resulting weak wages growth.
But the absence of inflation or housing market risks is not enough to push the RBA into a rate cut.
As long as the jobs market appears to be improving, the RBA can stay in its favourite spot – on the sidelines.