Mind the gap

The surprising part about yesterday’s rate rise wasn’t so much the fact that the official interest rate was increased by 25 basis points to 3.25%, but the statement from RBA Governor Glenn Stevens that accompanied the announcement.

Give it a quick read here. As you can see, Glenn has clearly been on the happy pills. Just six months after warning how big a hole we were in, Stevens is now saying that the economy is running very well indeed. Our trading partners are doing well, the housing and infrastructure sectors are humming, investment prospects are improving and business and consumer confidence has jumped sharply.

As JP Morgan economist Stephen Walters said yesterday: “This statement is not just saying that the emergency is over; it says that in many respects next year will be a back to trend year.”

It’s pretty tough to argue with the idea that the emergency is over – indeed, plenty of commentators are now saying (with the benefit of hindsight, of course) that it might not have been that much of an emergency at all.

But the disappointed comments from businesses groups, who argue that the RBA has lifted too early, should not be dismissed.

Yes, confidence is soaring as quickly as it fell during the dark days of late 2008 and early 2009.

But has that confidence actually translated to better conditions? The answer is far from clear, and there would be plenty of businesses that would say a resounding “no”.

For example, take yesterday’s survey of investor confidence released by the Australian Chamber of Commerce and Industry just before the rate rise announcement. While confidence soared, actual conditions, sales and profits continued to deteriorate during the September quarter.

This same sentiment is being repeated today across the economy, by groups such as the Australian Retailers Association, the Housing Industry Association and the Australian Industry Group – the recovery is underway, but it remains fragile.

Economist are tipping the RBA will raise rates again before Christmas. Let’s hope the very upbeat Glenn Stevens minds the gap between confidence and reality.

COMMENTS

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
Close
SmartCompany Plus

Sign in

To connect a sign in method the email must match the one on your SmartCompany Plus account.
Or use your email
Show
Forgot your password?

Want some assistance?

Contact us on: support@smartcompany.com.au or call the hotline: +61 (03) 8623 9900.