RBA Rate Decision – August 2017
Today Governor Lowe and the Reserve Board met and—no surprises here — cash rate remains on hold at 1.5%.
We did see some interesting commentary come out of the RBA over the July period, and some of that commentary was around what they thought was an ideal cash rate — around 3.25%. Now, with the current cash rate sitting at 1.5%, the markets took that as an indication that maybe rates were going to increase. But in reality, once you set the inflation target between 2% – 3% and the cash rate is basically sitting at 1.5%, you’ve got that 3.25% now. In addition to that, obviously we’ve got the Out of Cycle rate rises that have been caused by the banks. And that’s obviously doing some of the heavy liftings for the RBA, in terms of trying to keep the economy moving without property prices causing an “asset bubble”.
What we also saw occur, in regards to July, was the Exchange Rate.
The Australian dollar pushed through 80 US cents and on the Trade Weighted Index it also moved as much as 5% across most currencies. That’s not a “good news story” for our exporters who want to sell more products, and it ultimately flows into our GDP. So when we see that type of movement, it’s almost like getting a 25 basis points rise in the cash rate anyway. So the Reserve Board and the Governor don’t really need to do anything on that front. But it is obviously a challenge for them, in terms of trying to keep that exchange rate lower. We effectively want an exchange rate around 70 – 75 US cents because it means that with those greater exports, our miners can do more investing in jobs. And our exporters, our agricultural and farming exporters, can also sell more of their produce overseas. So it’s really important that we try to keep the dollar down lower so we can do more in terms of driving the economy forward.
Just on that point, let’s have a look at the unemployment data that came out.
So, we did see unemployment maintain at 5.6%. So that’s good — obviously, we want to keep pushing that figure down. We’re not seeing it drift out to 5.96% because that’s where we have some challenges —obviously, people aren’t employed. We still have some capacity when it comes to people who want to work more hours, and we’re working harder on that. In terms of the ANZ job advertisement series, we are seeing some positive data come out there as well. Month on month we saw some good increases. Over the year, we’ve actually seen increases of 4.9%.
If we also extrapolate that data out, and have a look at some of the trend data, what we’re seeing is over the last six months the trend data is up .9 — that’s month on month. Compared to the year before, we’re only trending at around .3% growth in Job Advertisements. So that tells us there is some very sluggish momentum, but still some momentum. Also, Business Confidence is showing some improved signs. So overall, we’d like to think that we’re getting some momentum — but the economy is still reasonably sluggish.
When it comes to the property market — it’s still surprising; it’s still quite resilient; it just won’t sort of cool off like we thought. We did see some earlier data in April/May when we were starting to think, This is starting to cool down a little bit. But the latest Auction Clearance Rates in Sydney and Melbourne are still saying that there are people who have an appetite to buy property at the moment.
So it still comes down to the fundamentals.
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