There could be an interesting moment during Tuesday's Reserve Bank board meeting: when the members consider that the bank's forecast of year-to gross domestic product growth dropping to about 2.5 per cent has arrived nine months early.
The RBA's quarterly statement on monetary policy last month predicted the June quarter's strong 3.3 per cent annual GDP growth rate would ease to about three per cent for the September quarter before bottoming in the March period. The median guess in Bloomberg's survey is now 2.5 per cent, albeit with a wide range of bets, ranging from a low 2 per cent by bearish Morgan Stanley to a brave 3 per cent by Moody's Analytics.
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RBA staying cool as the heat rises
The final Reserve Bank board meeting of the year takes place at a magical time in Sydney, where the city gives itself over to sundry before Christmas. Michael Pascoe comments.
Fortunately, it doesn't matter as much as some headlines might suggest if the impact of the end of the resources investment boom arrives sooner or later. It happens and then we move on.
Besides, the bottoming out of mining and LNG plant construction is one of the knowns for the RBA. The many unknowns are likely to concern the board more.
Uncertainty became the norm in 2016 and the lesson in dealing with it was to wait rather than react. Not only were the Brexit and Trump votes unexpected by most, the market reactions to both did not go the way of the immediate knee jerks – or at least not yet.
For our central bank, that makes a good argument for keeping what's left of its monetary powder dry. Unless there's a very clear and immediate danger for our economy, it makes sense to leave rates where they are.
With the results of the latest voting unknowns now known (positive in Austria, not so positive in Italy but it's Italy, so who knows?), the RBA could well spend more time contemplating the US economy than our GDP.
Trump fixed it. America is great again. https://t.co/c2iTjMZtYU
— Dan Ilic (@danilic) December 4, 2016
Whether the US Federal Reserve delivers its much-anticipated December rate rise will have more bearing on us as it should work as a defacto easing for us, on a relative basis, even while fixed rates tick higher.
And what Janet Yellen's Fed does in turn depends on its reading of the Trump experiment. Like the show biz personality that he is, Trump's timing could yet be good. Comedian Dan Ilic tweeted "Trump fixed it. America is great again." With the latest US labour market graph showing the unemployment rate down to 4.6 per cent, the lowest level in nine years. Irony can be a rare commodity in the US.
The recovery under Obama with millions of extra jobs, not Trump's 1,000 Carrier air-conditioning jobs in Indiana, has the Fed ready to inch rates a little higher.
It's in our interest to see how that pans out and clearer data about our economic transition before touching the monetary lever. The same Bloomberg survey has 100 per cent of its 26 respondents predicting no change at the RBA December meeting. Only three of the 26 suggest a change in February, increasing to four in March, nine in the June quarter and more than half of them are forecasting that we'll have one or two more rate cuts by the end of the September quarter. But of course nobody really knows. Neither does the RBA at this stage.
The final board meeting is taking place at a rather magical time in Sydney. The city increasingly gives itself over to maximum hospitality as a herd instinct impels people to "catch up" with all and sundry before Christmas, never mind office Christmas parties with varying levels of face paint, fancy and little dress in the rising heat, plus a certain general air of Bacchanalia as summer's sense of abandon spreads.
But no one's betting on any of that spirit reaching the RBA's Martin Place board room, where governor Philip Lowe's cool hand can be expected to remain steady upon the monetary instrument. Play resumes in February.
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