Well, not exactly no-one. Goldman Sachs chief economist Tim Toohey reckons the speech RBA assistant governor Chris Kent delivered on Tuesday amounts to an explicit shift to a neutral policy stance.
Having so closely linked the RBA’s easing cycle to the weakness in the terms of trade (and earlier decline in mining investment), Chris Kent’s key remark was to flag “the abatement of those two substantial headwinds” and highlight that this “would be a marked change from recent years”. Photo: Brendon Thorne
Dr Kent spoke about how the economy has performed since the mining boom, and in particular how the performance matched the RBA’s expectations.
Reflecting on the RBA’s forecasts of recent years, Dr Kent essentially framed the RBA’s earlier rate cut logic around an initial larger than expected decline in mining capital expenditure and subsequent larger than expected decline in the terms of trade, Mr Toohey notes.
Having so closely linked the RBA’s easing cycle to the weakness in the terms of trade (and earlier decline in mining investment), Dr Kent’s key remark was to flag “the abatement of those two substantial headwinds” and highlight that this “would be a marked change from recent years”.
Mr Toohey notes that Dr Kent also suggested that we might be at a transition point from a prices perspective – noting that “wage growth has shown signs of stabilisation” with a “pick-up” in some broader measures of wage pressures.
“Overall, while China and the AUD (Australian dollar) continue to present risks, the RBA appears quite comfortable with current economic conditions and also of the view that we are now at a positive transition point for nominal incomes, investment, and wages inflation.”
Mr Toohey says there was no sense from Dr Kent’s remarks that further policy easing is in the pipeline, increasing his conviction that rates will remain unchanged for an extended period.
Market pricing of another rate cut has edged lower over the past week. There’s now just a 25 per cent chance of a rate cut in November, moving up to 60 per cent by July next year, according to Citi.
At the beginning of the month, markets were pricing in a 44 per cent chance of a November cut, moving up to 100 per cent by July.
Morgan Stanley economist Daniel Blake agreed the Kent speech struck an upbeat tone and that the most likely course for the central bank now was to keep rates on hold.
“While the Australian dollar was a little higher than they would expect (with the RBA’s modelled fair value around US70¢), there was no hint of policy concern,” Mr Blake said in a note to clients.
“So while today’s labour market data was soft on balance, we would not expect the RBA’s outlook to be shifted, and expect the cash rate to be held at 1.50 per cent through the remainder of 2016.”
ANZ notes that while the Kent speech indicated that the RBA is broadly happy with momentum in the non-mining economy, inflation will be the key factor for the RBA in determining whether to keep rates on hold or cut again.
Third-quarter inflation numbers are due at the end of October and the RBA will be hoping for a pick-up from the last quarter, when consumer prices rose just 1 per cent over the year, their slowest annual rate since 1999.