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RBA upbeat about national economy

The Reserve Bank is more optimistic about the economy, meaning a likely end to its interest rate cuts.

In the minutes of its March board meeting, the RBA reiterated its stance that the cash rate will stay at its current level of 2.5 per cent “for some time”.

“The board would continue to examine the data over the period ahead, with members noting that, if the economy was to evolve broadly as expected, then the most prudent course was likely to be a period of stability in interest rates,” the RBA said.

Mining investment is expected to decline sharply in 2014/15, but other sectors of the economy are showing signs of life, the bank said.

“Growth in household spending looked to have picked up slightly in the December quarter, although the pace of growth was expected to remain a little below average for a time,” the RBA said.

“(The RBA’s) liaison suggested that the stronger retail sales seen in the latter months of last year had continued into the early part of this year, though sales growth may have eased somewhat.”

Despite an unemployment rate of six per cent in January and February, the RBA is confident the labour market will also improve.

“While the labour market was expected to remain subdued for a while and wage growth had declined, the board observed that this was consistent with conditions in the labour market lagging behind changes in economic activity,” the bank said.

It also again noted that the Australian dollar remained high by historical standards, although acknowledged its decline to current levels “would assist in achieving balanced growth”.

Westpac chief economist Bill Evans, who recently altered his forecasts to no more cuts to the cash rate in the near future, agrees the economy is getting stronger.

Westpac typically forecasts more rate cuts than other forecasters, and had been predicting a quarter of a percentage point reduction in August and another in November.

“The RBA board is pointing to gradual improvement in the economy, growth in 2015 being a little above trend; and inflation being contained,” Mr Evans said.

“These are the hallmarks of a central bank that anticipates remaining on hold for some extended period.

Topics: Economy
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