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

 

Testing And Decontamination: New Standard On Meth Residue

Standards New Zealand has today released NZS 8510:2017 Testing and decontamination of methamphetamine-contaminated properties ... More>>

ALSO:

Mince, Etc: US Food Poisoning Lawyer At Conference

As New Zealand chefs, food experts, and MPI debate what constitutes a cooked beef burger, leading US food safety litigator Bill Marler, who made his name prosecuting the burger company responsible for a major E. coli outbreak, is keynote speaker at the Food Integrity Conference. More>>

ALSO:

Petya: New Ransomware Campaign Hits Worldwide

A new ransomware campaign known as Petya is affecting computer networks using Microsoft Windows. It was first seen affecting systems in the Ukraine, but is quickly spreading across other computer networks in Europe. More>>

ALSO:

Skodafone Goneski: Sky TV, Vodafone Drop $3.44 Billion Merger Plan

Sky Network Television and Vodafone New Zealand have terminated their merger agreement which aimed to create the country's largest telecommunications and media group, and have withdrawn an appeal against the Commerce Commission's rejection of the plan. More>>

Quake Insurance: Reforms To EQC Act Announced

· Increasing the monetary cap from $100,000 (plus GST) to $150,000 (plus GST) for EQC building cover.
· Clarifying EQC land cover is for natural disaster damage that directly affects the insured residence or access to it... More>>

ALSO: