Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


RBA Observer: On hold next week, next move likely to be up

RBA Observer: On hold next week, but next move likely to be up

• Activity indicators are lifting and this month brought more news that the labour market is also improving
• Inflation has already passed its trough, the housing market continues to boom and the cash rate is still at its historic low
• It seems likely that the RBA will soon need to consider that rates should start to head towards neutral: we expect that the cash rate may need to rise before year-end

Growth and inflation are picking up
Local activity indicators are continuing to show that growth in Australia is rebalancing from being led by mining investment, as it has been in recent years, to being driven by the non-mining sectors of the economy. GDP picked up pace in Q4, supported by consumption and exports. In addition, retail sales are growing at their fastest rate since 2010, the housing market continues to boom, the forward-indicators of residential construction have picked up strongly and the business sentiment is at significantly higher levels than it was around the middle of 2013. Inflation has also lifted and appears to have passed its trough, which is another sign that demand has been picking up.

These facts alone might suggest that the current very low cash rate may not be the appropriate monetary policy setting and that rates should be lifted soon. But two key caveats remain: the labour market remains weak, with the unemployment rate at its highest level in 10.5 years; and, mining investment is set to fall further this year and next.

On both these factors we are more sanguine than many other commentators. We see the labour market as merely lagging the pick-up in activity that has already begun. We have long been arguing that as the economy shifts to being more driven by the non-mining sectors, employment growth should lift. After all, that is where most of the jobs are! The mining sector employs only a small number of people. This month brought support for our view with strong employment numbers in February.

With regard to the expected fall in mining investment, we forecast that it will be more than offset by a pick-up in resources exports, as new capacity comes on-line, and falling imports (recall that much of the capital for the mining investment was imported).

The past month has seen the market focus shift to the local data, consistent with our view that inflation and jobs are the keys for determining the RBA's next move. We expect the RBA to be on hold for the next few months, but for rates to rise before year-end.

Click here to read the full report.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Budget Policy Statement: Spending Wins Over Tax Cuts; Big Ticket Items Get Boost

Income tax cuts are on hold as the government says “responding to the earthquakes and reducing debt are currently of higher priority”, although election year tax sweeteners remain possible. More>>

ALSO:

Fishy: Is Whitebaiting Sustainable?

The whitebait fry - considered a delicacy by many - are the juveniles of five species of galaxiid, four of which are considered threatened or declining. The SMC asked freshwater experts for their views on the sustainability of the whitebait fishery and whether we're doing enough to monitor the five species of galaxiid that make up whitebait. More>>

ALSO:

Crown Accounts: Smaller-Than-Expected Four-Month Deficit

The New Zealand government's accounts recorded a smaller-than-forecast deficit in the first four months of the fiscal year on a higher-than-expected inflow of corporate and goods and services tax. More>>

ALSO:

On For Christmas: KiwiRail Ferries Back In Full Operation After Quake

KiwiRail’s Interislander ferries are back in full operation for the first time since the Kaikoura earthquake, with the railspan that allows rail wagons to be loaded on the Aratere now restored. More>>

ALSO:

Comerce Commission Investigation: Prosecutions Over Steel Mesh Labelling

Steel & Tube Holdings, along with two other companies, will be prosecuted by the Commerce Commission following the regulator's investigation into seismic steel mesh, while Fletcher Building's steel division has been given a warning. More>>

ALSO:

Wine: 20% Of Marlborough Storage Tanks Damaged By Quake

An estimated 20 percent of wine storage tanks in the Marlborough region, the country’s largest wine producing area, have been damaged by the impact of the recent Kaikoura earthquake. More>>

ALSO:

ACC: Levy Recommendations For 2017 – 2019 Period

• For car owners, a 13% reduction in the average Motor Vehicle levy • For businesses, a 10% reduction in the average Work levy, and changes to workplace safety incentive products • For employees, due to an increase in claims volumes and costs, a 3% increase in the Earners’ levy. More>>

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news