Hedge Clippings | 04 August 2023
To the surprise of very few, including the combined team at Hedge Clippings, for the second month in a row, the RBA and Philip Lowe left interest rates on hold at 4.1% this week at his penultimate board meeting. That doesn't mean we're out of the woods, or that future rises are off the table. Equally it's too early to forecast an early spring, and an associated easing, any time soon. As usual, particularly after his previous attempt of unsuccessfully predicting a date for future movements, Lowe was cautious, as the following extract from his post meeting statement shows:
"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks." We think that's the RBA's version of having two bob each way on a two horse race, but with the inevitable over-ride to finish: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
Today's RBA quarterly statement on monetary policy was also to a great degree a case of stating the obvious: Inflation is on the way down, but still too high. The labour market is still tight, unemployment at 3.5% is historically low, but both job vacancies and underemployment are showing positive signs (unless you're under-employed). Economic growth is subdued, and the outlook for the domestic economy is "subject to a range of uncertainties". Finally, "there are both upside and downside risks to the inflation outlook." There's another two bob each way bet!
Ever consistent, the Statement's Overview page finished with their familiar and now favourite phrase: "The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome." We can't say we haven't been warned.
Meanwhile yesterday's ABS Retail Sales figures for the June quarter confirmed just how finely balanced the economy is. The numbers showed that volumes fell (-0.5%) for the third quarter in a row, the first time since 2008 (during the GFC and the chaotic days of Kevin '07) that Australia has clocked three negative quarters on the trot. The June result takes the full fall over 12 months to 1.4%, the worst 12 month result (excluding the period during the Covid lockdown) since Keating's "recession we had to have" in 1991.
Retail spending on food, takeaway, cafes and restaurants fell, as did household goods, while clothing, footwear, and "personal accessories" were the only category to go against the trend, rising 1.1%. On the face of it, those struggling cut back on food and household items, but still looked after their appearance and personal items, obviously the new "real" necessities of life.
However, it does seem that Lowe will leave the RBA in mid-September with the economy still on his "narrow path". Whether Michele Bullock can carry on the task, and steer the Australian economy to its much hoped for soft landing, remains to be seen.
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