No change is the only constant

There was little surprise in the latest missive from the RBA, which saw the cash rate remain on hold at 2.5 per cent. As RBA ‘Guvna’ Glenn Stevens said, “on present indications, the most prudent course is likely to be a period of stability in interest rates”. In other words, we’re pretty happy with things as they are, and will probably sit back for a bit and see how the economy plays out.

Rates have remained unchanged for nine months now. That’s the longest stretch of stability since the RBA first gained independence from the government. BTW, independence from government is crucial to ensuring the RBA can do its job effectively. Imagine if rate’ decisions were made by politicians, whose various political agendas and electoral pressures would compete with the long-term interests of our economy … Doesn’t bear thinking about.

The big take-home message from the latest rates announcement is optimism. The RBA is more upbeat about the economy that it’s been for a while, particularly regarding employment. Last month the Guvna saw unemployment as a growing issue. Cut to May and the tune has softened somewhat following our recent .02 per cent drop in unemployment to 5.8 per cent. More people working means more money around to spend on stuff, which means more profits from business and more taxes to government – a virtuous cycle driven by happy, productive people.

The Guvna also notes that inflation is consistent with the RBA’s target of 2-3 per cent, as evidenced by the recent decline in wages growth and only moderate rise in prices.

Looking ahead? According to Senior NAB economist, Spiros Papadopoulos, the RBA is a long way from hiking rates, and won’t, until we see “a significant improvement in jobs growth and non-mining expenditure.” Cue collective sigh of relief from anyone with a mortgage!