The Economic Scene, according to the RBA
Following the September Board meeting, the Governor of the Reserve Bank of Australia (RBA) has provided a very thoughtful perspective of the Australian economy and the RBA’s view on asset prices. It’s well worth a read.
There are two points worthy of special mention;
In Australia however, it seems our central bank is more cautious and less circumspect about asset inflation. The following passage is from the Governor’s Address to CEDA Luncheon:
With that said, it seems like the RBA does not consider that asset prices are too expensive to warrant an increase in interest rates just yet. The RBA has acknowledged that the interest rate policy has been very accommodative for a considerable period, but also notes that this has created an environment of stability and predictability. This suggests that it may be some time before interest rates change, and that any interest rate increase will be well-flagged.
The Governor has also provided further detail regarding the sectors of the economy which are likely to contribute to economic growth. The RBA does not consider that households are likely to increase their consumption spending above their income, while Government spending is expected to remain subdued if the focus remains on balance sheet strengthening.
As such, the RBA considers that businesses are in the best position to drive economic growth. The RBA considers that businesses have been increasing cash holdings and that leverage is relatively low. In some areas outside of mining the level of gross fixed capital spending is barely above depreciation rates, while there are signs that innovation is occurring. The RBA is not calling on businesses to play a greater role in driving economic growth, it is simply considering that conditions may be favourable for capacity expansion.
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