Daily Commentary BY THE CURVE TEAM –

RBA Becoming Less Convincing

9th of August, 2018

The second of this week’s three events for the RBA saw Governor Lowe address the Anika Foundation luncheon yesterday. While he largely reiterated the same core message contained in the post meeting statement released the previous day, Lowe is becoming less convincing.

Governor Lowe kicked of his talk yesterday looking at the long run demographical changes occurring in Australia. It was a timely look at the topic as the Australian population broke through 25 million the night before.

The key to his take was that the recent above average growth in Australia’s population has largely been a positive for the economy. While most of the increase has been driven by migration, it has resulted in a lowering of the average age and will, at the margin, help with the ageing population.

He then turned to monetary policy where the bulk of his comments were a rehash of the post meeting statement that was released the day before.

While he tried to stick to the core message in his speech, the subsequent question and answer session was far more telling. Lowe frequently ducked and weaved around the pressing questions surrounding the RBA’s core outlook. It also appears that their outlook is largely based on hope. A hope that if growth does pick up, the subsequent reduction in spare capacity, increases in wages and inflation will follow.

You only need to take a look across the ditch to the situation in New Zealand to see that this hope could well be misplaced.

This morning the RBNZ left rates on hold, saying that “we expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement.”

That is in spite of having an unemployment rate a full 1% lower at 4.5% and an expectation that it will fall a little further over the forecast period. The New Zealand experience is along the same lines as what we have seen in other developed nations around the globe.

We now wait for the additional details set to be included in tomorrow’s quarterly Statement on Monetary Policy from the RBA for greater insight on the outlook for interest rates.

David Flanagan

Director - Interest Rate Markets