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Tuesday, 2 February 2016
Easy does it
Calm the ponies
As expected the Reserve Bank kept the cash rate on hold at 2 per cent today, with interest thus mostly focussed on the wording of the Statement.
It looked to me as though the media release had been written by a different author this month (or perhaps I'd just had too many green teas?), with a fair few changes in syntax and phraseology.
There was nothing too surprising in the substance, though, and thus there was no dramatic reaction from currency markets, although Wiktionary saw a 2.31pm spike in traffic as readers sought to discover the dictionary definition of "portends".
I kid, of course. The word "portends" didn't feature until near the end of the Statement, so it would easily have been 2.45pm by then.
For the record, Wiktionary helpfully clarifies: "Portends: third-person singular simple present indicative form of portend".
On hold again
Enough waffle, the Reserve left the cash rate precisely where it has been since May 5 of last year at 2 per cent.
Recall from last week (inflation is well under control) that core inflation is now running at a benign 2.0 per cent, meaning that the real cash rate is very close to zero, which should be stimulatory.
My chart below shows that the real cash rate has intermittently been negative since the financial crisis kicked off, which of course was one of the key triggers for rising house prices, and in turn dwelling construction.
The RBA Financial Aggregates (total credit passes $2.5 trillion) showed that despite growing household wealth, in aggregate the amount of money stashed in term deposits with banks has been falling steadily now since August 2012.
Easing bias retained
The Statement noted that:
"...new information should allow the Board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand.
Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand."
Which is known in Central Bank parlance as an "easing bias", with low inflation leaving the door open to further interest rate cuts if the delightfully termed "financial turbulence" ever begins squawking 7700.
Cash rate markets continue to price in an interest rate cut but with the timing pushed out until October, the implied yield curve having taken on a shallower aspect yet remaining inverted miles out into the second half of 2017.
The Statement noted that the pace of house price growth had slowed in Melbourne and Sydney, and had been mostly subdued elsewhere.
An absolute ripsnorter of a day lies in wait tomorrow, with several interesting data releases due out.
It'd be rather nice if the temperature dropped below 39 some time, I think the Brisbane heat has been getting to me today.