Steady as she goes, as the RBA decides on interest rates
Monday, 2 June 2014
Economists from the Australian School of Business at UNSW Australia are available to give commentary and analysis of the Reserve Bank's next interest rate move on Tuesday.
The Australian School of Business’
Professor James Morley is a member of the RBA Shadow board, which meets each Thursday before the decision by the Reserve Bank of Australia board. He said "the large decline in consumer confidence following the contractionary Federal budget makes it riskier for the RBA to start increasing the policy rate in the near future.”
He notes that while the unemployment rate has come down slightly from earlier highs, it is still at 5.8 per cent, with only slight movements in full time employment and the participation rate. Inflation meanwhile is at 2.9 per cent over the year - well within the Reserve Bank's target band of 2 to 3 per cent. “Therefore there is a strong case for keeping rates on hold right now – certainly until we have more data with the release of the second quarter inflation rate, which will be in July.”
However he notes “the RBA should monitor credit conditions and move quickly to adjust the policy rate in the event of abnormal credit growth. In particular credit growth would have to be broad-based - and show up in all of housing, personal, and business sectors - plus be significantly faster than overall economic growth for the RBA to adjust rates on the basis of abnormal credit growth.”
He argues the need for, and likelihood of, a cash rate rise is not strong, and he said he wouldn’t anticipate a movement on that basis until the end of the year at the earliest. However he does have a warning for the RBA
“Once there is some indication of abnormal credit growth, the RBA should move quickly to return the policy rate to a more neutral level rather than wait and see how sustained the abnormal credit growth is,” said James Morley.
For further comment call James Morley on 02 9385 3366, 0406 842 550, or
Julian Lorkin: 02 9385 1574