The fight against inflation is proceeding as planned, but don’t expect a rate cut any time soon; that was the message delivered by Reserve Bank Governor Glenn Stevens last night.
Recent signs of slowing in the retail and housing sectors have led some to predict that we could see the RBA cut interest rates at the end of this year.
But in a speech at Sydney University last night, Stevens said while Australia’s economic growth is likely to fall below the 3.4% average of the past decade, China’s continuing hunger for our natural resources will keep a floor under growth compared with past periods of lower growth.
"Today, rising commodity prices are again a feature of the global economy," Stevens said. "This time around, much of the rise in our terms of trade appears likely to be more sustained, resting as it does on the demand rising from the long term emergence of large economies like China and India."
Reading between the lines, JP Morgan chief economist Stephen Walters says Stevens’s comments indicate the RBA continues to see overheating as the biggest risk facing the economy.
“The main message from the speech is that the RBA is on hold, but with inflation already well above target, the emergence of sustained evidence that domestic demand is not slowing in line with expectations could trigger another rate hike. Rate cuts any time soon are out of the question,” Walters says.
On the markets today, at just after midday the S&P/ASX200 is up 1.3% on yesterday’s close to 5965.
And despite the recent strength of the Australian dollar, Australian Bureau of Statistics figures show tourist numbers are holding up reasonably well. In April the number of short-term visitors from overseas increased 2.4% and are 0.2% up on this time last year.
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