When the Reserve Bank of Australia (RBA) announced that it would leave the cash rate unchanged at 4.
75 per cent, it gave no hint about how long the rate would stay at that level.
It could be a while, but the next move is still very likely to be upwards. In testimony to a Senate committee last month, RBA governor Glenn Stevens said he “would not be seeking to dissuade people” from the view that there would not be any change in the cash rate “for some time”.
In fact, when asked whether rates would stay steady for the foreseeable future, he replied: “How long is the foreseeable future; how long is a piece of string?”
And in its statement on Tuesday, the RBA continued to shy away from any hints about the likely interval between the latest rate rise, back in November, and the next. It gave no indication of how long “some time” might turn out to be.
But it certainly gave no reason to expect a rate hike in the next couple of months.
The summary of economic conditions was a familiar mix of positives and negatives.
On the positive side, the global economy was continuing to expand, led by strong Asian economies with commodity prices expected to soar even higher in recent months.
Australia’s terms of trade – the ratio of export prices to import prices – are at their highest level since the early 1950s, and private investment is picking up in response, the RBA said.
But households remain cautious, asset prices have been steady in recent months and credit growth remains subdued. And the labour market is cooling, stopping short of a generalised undersupply.
“Most leading indicators suggest further growth in employment, though most likely at a slower pace. “Reports of skills shortages remain confined, at this point, to the resources and related sectors,” the RBA said.
Earlier wage moderation, the high Australian dollar and competitive pressures are keeping a lid on inflation, which the RBA said was expected to be consistent with the two to three per cent target over the year ahead.
The statement on Tuesday was not specific on this point, but RBA forecasts published in January show the inflation rate is expected to be hovering around the top of the target range from the end of this year to mid-2013 – the RBA’s official forecast horizon.
Realistically, that means the odds heavily favour a rate rise as the next move because inflation at the top of the range means deviations from the forecast rates are more likely to result in above-target inflation than below-target inflation.
Given that it is likely to be months before such a deviation, or even the likelihood of such a deviation, becomes apparent, it seems unlikely that a rate move will be seen until well into the second half.