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The Experts

Rates on hold for 13th month in a row

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By ING Direct's Deputy Treasurer, Peter Casey

What was discussed at today’s RBA meeting? Were there any major differences compared with last month’s statement?

There were no major differences but the tone has been getting slightly more positive in recent months.

  • Employment numbers have been improving and this should lead to a wage pickup over time
  • Inflation is also expected to pick up
  • There are still some headwinds with residential construction likely to have peaked and retail sales sluggish
  • Housing prices may be softening in Sydney

 
What are the major concerns for the RBA?

Support is coming from Chinese growth but this may not be sustainable as it is reliant on high levels of debt.

There are still a few soft patches in the economy:

  • Residential construction may have peaked. This sector is a big employer so, reading between the lines, this may become a concern
  • Retail Sales are sluggish. It’s hard to get people shopping harder due to low wage growth and high debt levels
  • Wages growth remains low. I think the RBA is being too optimistic about this picking up

 
What is ING Direct’s outlook for the economy, the Aussie dollar and interest rates?

The next move on the Cash Rate is likely to be up but the RBA will want to see data come through to validate this move. In particular, CPI is still below the target band and GDP growth is only just recovering.

The Australian dollar is up 10% vs the USD this year but this is mostly a story of USD weakness. We think it will be hard for the AUD to move much through 80c unless the RBAS starts hiking sooner than expected.

The economy is on a path to gradual recovery but there are still some soft spots. Employment is improving but not to the extent that wages are accelerating. Imports have strengthened with stronger commodity volumes.
The housing market is in a more sustainable position with prices easing.

With high household debt levels the RBA will be cautious about hiking the Cash Rate but is has already begun signalling that the next move is more likely to be up than dow

Published: Wednesday, September 06, 2017


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