Nicholas Gruen, CEO of Lateral Economics, was far more succinct when explaining why he believed rates would remain steady. The Australian economy is continuing its transition following the end of the mining investment boom. The transition to lower levels of mining investment following the mining investment boom is nearly complete, with some large LNG projects now close to completion. Regarding questions over the impacts of US's rate hike schedule and ECB's more hawkish stance on RBA's monetary outlook, Governor Philip Lowe noted that there's no "automatic" link among the issues.
But with Australia's economy grappling with soft wages growth and high household debt, hurting consumer spending, the Reserve Bank stepped up its rhetoric against the local dollar. Various forward-looking indicators still point to continued growth in employment over the period ahead and the unemployment rate would decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet.
The Australian dollar took a brief knock on Tuesday after the country's central bank cautioned that its strength could harm the economy, though the impact was quickly offset by gains in commodity prices and weakness in the United States dollar.
As has been the case for the best part of year, no one expects that interest rates will change today. But Dr Lowe noted that "a factor working in the other direction is increased competition from new entrants in the retail industry".
Analysts will also be adjusting forecast medium-term currency rates in their discounted stock valuation models that means US dollar earners like Woodside Petroleum Limited (ASX: WPL), CSL Limited (ASX: CSL) Amcor Limited (ASX: AMC) and QBE Insurance Group Ltd (ASX: QBE) are all coming under valuation pressure. It added that "the higher exchange rate is expected to contribute to subdued price pressures in the economy".
In response, the RBA inserted a new paragraph in its August policy statement, saying, "an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than now forecast".
The Reserve Bank signalled that it was not particularly anxious about housing prices, saying they were rising briskly in some markets, albeit more slowly. In some markets, conditions are strong and prices are rising briskly.
Household indebtedness has increased as more Australians speculate in the property market, particularly in Sydney and Melbourne where prices have broadly doubled since 2008.
"In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years", Lowe said. Growth in rents is the slowest for two decades.
"Growth in housing debt has been outpacing the slow growth in household incomes", Dr Lowe warned.
Despite the bank's concern over recent strength in the Australian dollar, the broader economy has improved in recent months.
The Pound to Australian Dollar is correcting back in the middle of a downtrend as the new trading week begins.