De facto monetary policy easing confirms next rate move is up

The Reserve Bank of Australia this week reiterated a point made in its recent statement on monetary policy that lending rates in Australia have fallen this year despite the cash rate being on hold.

According to governor Glenn Stevens, this development was “more than half a monetary policy easing”. His message was consistent with recent communication. In our view this confirms a further easing of monetary policy remains off the table: “the Board has been mindful of…the very considerable limitations for monetary policy in fine-tuning economic outcomes over short periods”.

On business investment, the governor highlighted the tentative nature of the recovery, adding this is a relatively normal situation for this point in the economic cycle. He reiterated many businesses were more focussed on returning capital to shareholders and less on investing. “Any plans for growth that might be in the top drawer remain hostage to uncertainty about the future pace of demand,” Stevens said.